Foreclosures declined for the eighth straight month, according to reports from RealtyTrac. Foreclosure filings were down 33 percent from the previous year, and were down 2 percent month-over-month. The number of homes seized by lenders fell 3.8 percent from April to May to just shy of 67,000 repossessions. This represents a 29 percent year-over-year decrease.
James Saccacio, the CEO of RealtyTrac said that the declines are probably the result of the continuing fall-out from the robo-signing scandal. After massive paperwork errors were discovered in many foreclosures, several major banks put mortatoria on foreclosures until the issues were sorted out. Foreclosures have since resumed, but at a slower pace. It is far from clear that the original paperwork problems are now fixed. There is increased judicial and legislative scrutiny on foreclosures in light of the ongoing problems. Several lawsuits have gone against the Mortgage Electronic Registration System (MERS), and some states have passed more stringent foreclosure laws.
Delays in the foreclosure process are also creating a massive backlog of foreclosures where judicial foreclosures are required. Additionally, banks are having difficulty unloading many of the homes that they have already seized, leading to homes piling up in shadow inventory (homes that have or will be repossessed, but have yet to make their way to market). This means that lenders have little reason to seize additional homes, knowing that they will likely sit unsold.
I fully expect to see foreclosure numbers start increasing at some point in the near future, barring an economic turnaround or a series of big court rulings against MERS or major lenders. Despite the decrease in foreclosure, the housing market is far from out of the woods.
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