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Foreclosures Move East as Hardest-Hit Markets Clear

Thursday, 17 May 2012 | 12:00 AM ET
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nationally to the lowest level since the summer of 2007, but government intervention and the recent $25 billion mortgage servicing settlement are now changing the face of the crisis.

Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, fell 5 percent in April from March, according to a new report from RealtyTrac, and are down 14 percent from April of 2011. One in every 698 U.S. housing units had a foreclosure filing during the month.

“Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada,” said Brandon Moore, CEO of RealtyTrac in a release. “Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year.”

Major banks are also suspending foreclosure actions, as they comply with the mortgage servicing settlement that was the result of so-called “robo-signing” in foreclosure document processing. Bank of America recently announced that it was beginning a summer-long campaign to contact 200,000 borrowers, and offer them principal reduction, as part of the settlement; foreclosure actions, bank representatives said, would be suspended until the bank had reached them all and determined if they were eligible for new loan modifications.

Lenders are also responding more efficiently to requests for short sales, which is when the home is sold for less than the value of the mortgage. New financial incentives from the government and new streamlined programs at Fannie Mae and Freddie Mac are behind much of that.

“Our preliminary first quarter sales data show that pre-foreclosure sales, typically short sales, are on pace to outnumber sales of bank-owned properties during the quarter in California, Arizona and 10 other states,” adds Moore.

As also reported today by the Mortgage Bankers Association, there is a big discrepancy between foreclosure activity in states that require a judge in the process (judicial) and states that do not (non-judicial). The MBA reported a rising number of loans in the foreclosure process in judicial states, but a falling number in non-judicial states during the first three months of the year. For April, RealtyTrac reports foreclosure activity down 7 percent from March and down 29 percent from a year ago. In judicial states, activity was down just 3 percent month to month but still up 15 percent from a year ago.

The judicial/non-judicial split is pushing the foreclosure crisis east, as some of the worst-hit states like California, Arizona and Nevada are able to clear through the backlog more quickly. The 11 cities with annual increases in foreclosure activity were all in the Midwest, South or on the East Coast, while six of the nine cities with annual decreases were out West in California, Arizona and Washington, according to RealtyTrac. California and Nevada, however, still post the top foreclosure rates, along with judicial Florida.

The supply of bank-owned properties in non-judicial states is also falling, as a growing cadre of investors sweeps in to buy distressed properties at the courthouse steps. One California Realtor speaking at the National Association of Realtors’ midyear conference this week told the conservator of Fannie Mae and Freddie Mac, “We don’t need a bulk REO sale program, we have no inventory!”

Bank repossessions (REO) are down for the third straight month, according to RealtyTrac. Lenders took back 51,415 properties in April.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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