The number of homes entering the foreclosure process rose in March, up 8.1 percent, according to a new report from lender Processing Services, but the volume is down more than 30 percent from a year ago.
Analysts had expected this number to skyrocket immediately following the $25 billion settlement between banks and state governments over fraudulent mortgage servicing.
Foreclosures sales, which are the final stage of the foreclosure process, not sales of bank-owned homes, dropped precipitously in March to their lowest point in over two years. They dropped most sharply — 14 percent month-to-month — in states where a judge is not required in the foreclosure process (so-called non-judicial states).
Again, that is contrary to expectations, but could be yet another stall in the system, as banks try to modify more loans to meet some of the terms of the servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.
That low pace of foreclosure sales is keeping foreclosure inventory, or loans in the foreclosure process, at near historic highs, according to LPS. That number may be heading lower, however, as banks ramp up the short sale process. Short sales, when the bank allows the home to be sold for less than the value of the mortgage, are in fact now outpacing sales of bank-owned homes in many markets, according to a new report from RealtyTrac.
Short sales rose by 15 percent in the fourth quarter of 2011 from the previous year, while sales of REO’s (bank-owned homes) dropped 12 percent. Short sales outpaced REO sales in several markets, including Los Angeles, Miami, and Phoenix, according to RealtyTrac. Georgia, where foreclosure inventories are surging, saw a 113 percent jump in short sales. The process, once avoided widely due to its lengthy lag time, is already speeding up, and Fannie Mae and Freddie Mac both recently announced new guidelines to reduce short sale timelines.
“Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,” notes RealtyTrac’s Daren Blomquist. “This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.”
Look for a special report on the Atlanta housing market on CNBC and CNBC.com Thursday.