Foreclosure Backlog Building
The number of homes seized by lenders in the first half of the year was down 30 percent from the same time last year, mainly due to delays in processing foreclosures at many US lenders. Banks foreclosed on just over 421,000 homes between January and June, compared to nearly 530,000 seized in the first half of 2010, according to data issued Thursday by RealtyTrac.
The decline in seizures is caused mainly by lenders taking longer to initiate foreclosures against homeowners behind on their payments as they continue to rework documentation procedures after the so-called robo-signing scandal came to light. Some lenders are also putting off foreclosures because of difficulty in selling properties already on their books.
As lenders continue to put off foreclosures, a massive backlog of potential seizures is building. RealtyTrac estimates that as many as a million of these homes should have been seized so far this year, but will instead mount up and be seized next year, or even later. Delaying these filings allows homeowners who fall behind more time to remain in their homes. Some will use this time to get caught up on payments to avoid foreclosure, but others will simply save money to help them move on after their home is eventually seized.
The difficulty for the housing market represented by all these pending foreclosures is that it extends the time the market will be depressed by a sizable shadow inventory of distressed properties. According to RealtyTrac vice president Rick Sharga, the best-case scenario facing the housing market is that foreclosure activity returns to a normal level of activity in 2015. And given how long it’s taking to process foreclosures, that could be dragged out into 2016.
In the first six months of the year, about 1.2 million homes received some type of foreclosure-related notice. That figure is down 25 percent from the previous six months and down 29 percent from the same period a year ago. In addition to seizing fewer homes, banks also sent out 36 percent fewer initial notices of default in the last six months than in the first half of 2010. These notices are typically the first step in the process of seizing a delinquent homeowner’s home. Foreclosures did pick up slightly between May and June, though they were still below last year’s levels.
At the current pace, lenders are on track to seize between 800,000 and 900,000 homes this year, down from a record of 1 million foreclosures in 2010. Foreclosures typically sell at significant discounts to traditional properties, bringing down home prices. Because of this, housing experts say that there will not be a full recovery in US home prices until the glut of foreclosures is cleared out. Lenders have been careful not to flood the market with all their foreclosures at once, as it would lower prices. But the prospect of these foreclosures gradually hitting the market for several more years is making it very difficult to predict when home prices will eventually recover.