Almost a week after the foreclosure settlement deal was signed between 49 states and five major mortgage servicers, RealtyTrac, the leading online marketplace of foreclosure properties, released its January 2012 foreclosure market report. According to the report, foreclosure filings for the month rose 3% from the prior month but declined 19% from the prior-year month, with a total of 210,941 properties receiving default, auction or repossession notices.
Though there was a rise in the number of property auctions and repossessions by banks, new defaults remained unchanged from December 2011. Issuance of default notice, the first step in the foreclosure process, remained at par on a month-over-month basis but dipped 22% year over year to 58,362.
Conversely, in January 2012, foreclosure auctions inched up 1% from December 2011 but declined 20% from January 2011 to 86,037 properties. Similarly, the final stage, i.e. bank repossessions, surged 8% from the previous month but slipped 15% from the year-ago month to 66,542 properties. The states with the highest foreclosure activities were Nevada, California, Arizona, Georgia, Michigan, Florida, Illinois, Delaware, Colorado and Indiana.
Moreover, there are signs that the foreclosure activities would increase in the upcoming months as a result of the $25 billion settlement deal that took place between five mortgage servicers - JPMorgan Chase & Co. ( JPM ), Bank of America Corporation ( BAC ), Citigroup Inc. ( C ), Ally Financial Inc. and Wells Fargo & Company ( WFC ), 49 states' attorneys general and the regulators. The deal is expected to speed up the rate of the foreclosure activities, which was almost frozen till now.
Why Foreclosures Declined?
The main reasons behind the drop in foreclosure activities were delays due to processes held up in courts, re-filing of earlier filed foreclosure cases, regulatory agencies' probes and reluctance of lenders to take back properties resulting from declining home sales.
The problem was further compounded by flawed documents used by the lenders to foreclose properties. At the time of foreclosing homes, many lenders used 'robo-signers' − employees who sign hundreds of documents a day without verifying decisive information like the previously outstanding amounts of borrowers.
This problem further intensified because of the negligence of homeowners and lawyers despite their awareness about the foreclosure rules. Flawed paperwork also raised questions about the validity of the ownership documents. Hence, in October 2010, JPMorgan, Bank of America and Ally Financial temporarily suspended foreclosures across the country. Thereafter, a probe was launched by U.S. bank regulators and a task force of attorneys general of all 50 states.
Apart from this, a combination of various measures taken up by national and state-level regulators, to allow distressed home owners to successfully avoid the chances of foreclosures, also led to the decline in foreclosure activities over the past year. Some of these measure included loan modifications, lender-borrower mediations and mortgage payment assistance for the unemployed.
Reason for the Future Rise
Now, with nearly all the problems related to flawed paper work getting resolved, the temporary downtrend in foreclosures is about to get reversed. Moreover, the settlement deal clearly states the procedures to be followed while foreclosing a property. This will allow the servicers to step up the foreclosure activities.
RealtyTrac anticipates foreclosures to rise 25% this year to 1 million homes compared with 804,000 homes foreclosed in 2011. Similarly, Fitch Ratings also expect foreclosures to accelerate as lenders try to clear the backlog that was in place for more than a year.
With many properties expected to come on to the market due to increased foreclosure activities, this will put additional pressure on home prices across the country.