According to RealtyTrac, foreclosure activities fell significantly in 2011, with 1.89 million foreclosure filings ? a 34 percent drop over 2010. Many market analysts and economists quickly jumped on the news as a sign that the housing market may have finally touched bottom, and despite other issues with the economy, the market finally has the foundation needed for some semblance of sustained recovery.
However, the chief economist of Moody’s Analytics cautioned against too much premature celebration. Zandi states that the system continues to have a sizable number of foreclosures to resolve. With millions of Americans still suffering from the average 34 percent dropped in home values combined with income and jobs concerns, they could eventually lose their homes.
Jared Bernstein agrees, "This long, painful correction is not over yet, but probably mostly behind us," said the senior fellow and former economic advisor to President Obama. Bernstein echoes what other economists have lamented through the housing crisis— real progress in the housing market will only come when the drop in home values settles. Only then can we "achieve economic liftoff."
Nationwide Foreclosure Numbers
Looking at the RealtyTrac report, the number of reported foreclosure filings dropped each month, on a year-to-year basis, on through the month of November. In 2011, 1,887,777 homeowners received 2,698,967 foreclosure filings. In 2010, 2.9 million homeowners received at least one foreclosure filing notice.
Foreclosure filings include default notices, notices of scheduled auctions and bank repossession notices. In addition to a significant drop over 2010 figures, foreclosure filings declined 33 percent compared to 2009 and came in 19 percent lower than 2008.
One in 69 homeowners or 1.45 percent received at least one foreclosure filing in 2011-- a decrease of 2.23 percent- 2010. Relative to2009, the number of foreclosure filings dropped 2.21 percent and 1.84 percent for 2008.
Many homeowners with adjustable-rate mortgages, who had the necessary credit, score, income and home equity to refinance into low interest rate mortgages, moderated the 2011 foreclosure rate. The Mortgage Bankers Association reports over 70 percent of mortgage lending in 2011 consisted of refinance mortgages.
States with the Highest Foreclosure Rates
The four states with the highest foreclosure rates for 2011 were Nevada, Arizona, California and Georgia. Six percent of Nevada homeowners receive at least one foreclosure notice for the year. Arizona, California and Georgia have rates of 4.14, 3.19 and 2.32 percent, respectively.
Rounding off the top ten states with the highest foreclosure rates for 2011:
Utah – 2.32%
Michigan – 2.21%
Florida – 2.06%
Illinois – 1.95%
Colorado – 1.78%
Idaho – 1.77%
In Florida, Maryland and New Jersey, foreclosure activities dropped over 50 percent.
On average, the nationwide average for the foreclosure process was 348 days in the fourth quarter of 2011.The three states with the longest average foreclosure process are New York-1019 days, New Jersey - 964 days and Florida - 806 days. Texas had the shortest average period for the foreclosure process—90 days, followed by Delaware-106 days and Kentucky-108 days.
Expect Foreclosure Rate to Increase in 2012
It is important to remember, the “robo signing” scandal, which became front-page news in late October 2010, derailed foreclosure activities heading into 2011. Brandon Moore, the CEO of RealtyTrac, acknowledges questionable documentation and charges of illegal foreclosure proceedings placed a cloud over the entire foreclosure process.
Moore points out, the foreclosure process suffered from inefficiency during most of 2011, especially in jurisdictions that follow the judicial foreclosure process. The judicial foreclosure process requires a lender to prove to the court that the homeowner has defaulted on the mortgage. The bank must exhaust all efforts to work with the homeowner to correct the deficiency.
If this effort fails, the lender’s attorney files a lawsuit. At the hearing, the lender must provide evidence to the court of the homeowner’s default, and the bank’s right to bring foreclosure action against the homeowner.
Conversely, in states with “non-judicial” laws, the lender must file a series of notices, but does not have to go through the court to initiate a foreclosure sale of the home.
Although filings dropped on a yearly basis, lenders quickened the pace of foreclosure filings in the third and fourth quarters of 2011. Moore expects this trend to continue through 2012. This means we should expect a higher rate of foreclosures for the year, compared to 2011. However, the numbers should come in lower than 2010 figures.
The shadow inventory—homes in foreclosure or owned by banks (REO) —dwindled 32 percent, from 2.2 million in December 2010, to 1.5 million in September 2011. The housing market still has to overcome the challenge of homeowners teetering on the brink of foreclosure.
This year, the shadow inventory will decrease as more properties moves through the foreclosure funnel. Some people will save their homes by refinancing to a low interest rate mortgage through HARP or securing a loan modification via HAMP or some other lender’s program.