Foreclosure Processing May be Delayed but It Is Not Going Away
Foreclosure statistics are finally catching up with foreclosure news. The freeze on foreclosures by big lenders Bank of America, GMAC and J.P. Morgan Chase in October is reflected by statistics from RealtyTrac Inc. showing that foreclosures in October were down 9% from the September level of 102,134.
Although reduced levels of home seizures would normally be seen as a good sign, there are no economic indications that the decreases were due to fewer defaults on loans. The “robo-signing fiasco” is almost certainly the culprit behind last month’s numbers. While foreclosures have restarted in most areas, banks are taking a more cautious approach to protect themselves from legal action.
All 50 states have joined in the investigation of potential illegal actions by lenders in instigating home seizures. States requiring judicial action to initiate a foreclosure are now likely to process foreclosures more slowly as judges exercise additional scrutiny.
As the inventory of foreclosed properties increases, the housing market is finding it difficult to return to normalcy. Distressed houses put downward price pressure on home prices. Homes in the same neighborhood with a high level of distressed properties lose their value. Not only does that make it more difficult to sell, but it makes existing refinancing harder because loan to value ratios increase.
Although some realtors are seeing increased home prices because of the decrease in distressed properties in their markets, it doesn’t mean that home prices will hold onto their gains. The backlog of foreclosures is big, and though it may take a little time, these homes will eventually be for sale on the open market, forcing home prices lower yet again.
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