Credit Commentary

Foreclosures ease in February, but risk remains

By Zarana on Thursday, March 11 2010

U.S. mortgage foreclosure filings dropped for a second straight month in February, and notched the smallest annual increase in four years as housing-rescue efforts contained activity. If foreclosures keep dropping further, it will be one of the strongest signals yet the market is on the path to recovery. However, this ease in foreclosure filing doesn’t exactly suggest that fewer homeowners are in distress but may be a temporary effect of government programs and mere technical processing delays.

Foreclosure filings, including mortgage default notices, house auctions and home repossessions by banks, were reported on 308,524 properties in February, down 2% from January, but still up 6% from the year-ago month. However, In January 2010, the foreclosure rate had fallen 10% from December 2009

One in every 418 U.S. housing units received a foreclosure filing in February, Irvine, California-based RealtyTrac said in its February 2010 U.S. Foreclosure Market Report. Furthermore, more than 300,000 properties received foreclosure filings for a 12th straight month.

RISK CONTINUES

This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure but rather that foreclosure prevention programs, legislation, and other processing delays are in effect capping monthly foreclosure activity, albeit at a historically high level that will likely continue for an extended period.

Proclaiming an end to rampant foreclosures, however, is premature. Indeed, many say foreclosure prevention programs have fallen short of addressing the trend's current drivers. While February's drop may indicate that efforts to prevent foreclosure are gaining traction, the data has been volatile. In addition, severe winter weather appears to have temporarily slowed the processing of foreclosure records in some Northeastern and Mid-Atlantic states.

Hundreds of thousands of homeowners are still being evaluated for help under loan modification programs. Many analysts say most will eventually lose their homes, sparking a new round of foreclosures later this year. In addition, high unemployment and wage cuts have hurt the ability of many home owners to pay monthly mortgage payments. Unemployment was at 9.7% in February.

A record 2.8 million households were threatened with foreclosure last year. That's expected to rise to more than 3 million this year.

DEFAULTS LEVELS OFF

Default notices totaled 106,208 in February, down 3 percent from a year earlier and up 3 percent from January. Defaults peaked at more than 142,000 in April 09. Scheduled auctions totaled 123,633 last month, up 16 percent from February 2009 and down 1 percent from January. The peak was more than 144,000 in August.

BANK REPOSSESSIONS

Bank seizures are increasing the number of homes for sale. The number of homes actually taken back in bank repossessions fell to 78,683 during February, from 87,648 a month earlier. More than 2 million empty homes were on the market in the fourth quarter, according to the Census Bureau.

NEVADA STILL ON THE TOP

The foreclosure rate in Nevada, once one of the hottest U.S. real estate markets, remained highest among U.S. states for the 38th straight month, despite a month-over-month drop in foreclosure activity of nearly 7% and a year-over-year fall of 30%.

One in every 102 Nevada housing units received a foreclosure filing during the month of February -- more than four times the national average.

Arizona and Florida documented nearly identical foreclosure rates, with one in every 163 housing units receiving a foreclosure filing in both states in February. Despite a nearly 21% drop in foreclosure activity from the previous month, Arizona's rate was statistically slightly higher than Florida's rate, and ranked second highest among the states. Foreclosure activity in Florida increased nearly 15% in February from January.

Six states accounted for 60% of all foreclosure filings. California, with 68,562, led all states and had the fourth highest rate, with one of every 195 households receiving a filing.

Michigan's foreclosure rate ranked fifth highest among the states, with one in every 226 housing units receiving a foreclosure filing in February.

Other states with February foreclosure rates among the nation's top 10 were Utah, Idaho, Illinois, Georgia and Maryland, the report showed

 

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