What’s wrong with this picture?
For 18 months, the backlogged inventory grew at an alarming rate as lenders slowed foreclosure processing, especially in judicial states. When the nation’s attorneys general and the five largest lenders negotiated a deal that, among other things, would reduce lender liability and establish new standards for processing, some (including me, see Weather Report on the Foreclosure Storm and New Weather Forecast: Stop Worrying About the Foreclosure Tsunami) feared that the backlog would hit local markets in a tidal wave, swamping prices and the nascent recovery. Investors in many markets slowly starved as their local inventories of distressed sales shrank.
Six months ago the AG agreement was signed. The checks for 25 billion paid by the lenders to the states have long since been cashed. Shortly after the signing of the agreement, processing new foreclosures picked up as lenders started foreclosing proceedings at a pace not seen since Robogate. Pipeline times fell for the first time in many months as the “shadow inventory” of homes more than 30 days delinquent but not yet in foreclosure that had been left frozen in place, often with the owners still in place. By July 2012, the shadow inventory fell from 2.6 to 2.3 million units or six-months’ supply and represented just over three-fourths of the 2.7 million properties currently seriously delinquent, in foreclosure or in REO.
However, instead of getting better for investors seeking deals, things have gotten worse. However, processing has slowed again. Last month completed foreclosures fell to 57,000, a 68 percent decline from a year ago and a 3 percent decline from August, CoreLogic reported.
In September, the national foreclosure inventory–the share of homes in any stage of the foreclosure process-was virtually as high as it was a year ago and has fallen less than 7 percent since March, according to the latest report from CoreLogic released this morning. The national inventory stands at million homes, or 3.3 percent of all homes with a mortgage… Moreover, new foreclosure activity is down 7 percent from August and16 percent from a year ago. In fact, September was the slowest month for foreclosure activity since July 2007, according to RealtyTrac.
Local inventories remain tight, driving the average foreclosure-related sales price in the second quarter up 6 percent from the previous quarter and 7 percent from the second quarter of 2011. It was the first annual increase in average price since Q2 2010 and the biggest annual increase since Q4 2006.
Tight inventories and rising prices sound like a great market to sell those backlogged foreclosures that are bleeding lenders for carrying costs every day they are shuttered, right?
Well, not exactly. I am tempted to make a gastrointestinal metaphor, but instead I’ll answer the question. The reason processing continues to be so slow (currently the average is 362 days, an all-time record) because foreclosure processing system has yet to be fixed. The Consumer Financial Protection Board, the Treasury agency created by the Dodd-Frank bill, was given the responsibility to write new rules for the industry and it issued its proposed regulations in August. However, they won’t be final until the end of the year. The regs have been met with little enthusiasm and may be revised.
Sometime early next year, nearly a year later than many had hoped, processing will indeed be fixed and lenders will speed things up as they put in place new rules without fear of liability or punishment for taking a wrong step.
So get in the spirit of the season. This year was the trick. Hopefully, next year will be the treat.
Photo: JustinThe Great Foreclosure Trick or Treat by Steve Cook