Foreclosures Top 100,000 for First Time

By:
Kirk Haverkamp | October 14, 2010

The number of homes lost to foreclosure topped 100,000 for the first time in September, as lenders continued to work through a backlog of distressed properties. 

Banks repossessed just over 102,000 properties in September, a 7 percent increase from the more than 95,000 foreclosed on in July, according to figures released today by the foreclosure data company RealtyTrac. An estimated 1.2 million homes are presently in some stage of the foreclosure process, according to RealtyTrac spokesman Daren Blomquist.
 
Bank repossessions have been steadily increasing in recent months, as lenders address a substantial inventory of distressed properties where foreclosure has been deferred due to moratoriums, unsuccessful efforts to obtain loan modifications or other foreclosure prevention efforts.
 

Defaults turn upward

 
More than 102,000 properties in September were subject to new default notices, the first stage of the foreclosure process, up 6 percent from over 96,000 in August. That’s the first increase in defaults after months of declines, but that itself may not be particularly significant, according to Blomquist.
 
“We’re not confident that (downward) trend means that fewer people are actually missing their mortgage payments,” Blomquist said. Rather, he said, it appears that lenders were scaling back on issuing default notices to delinquent borrowers in order to focus on foreclosures in progress, and in September began to step them up again.
 

Numbers likely to decline due to robo-signing controversy

 
Even so, those numbers are likely to decline in the months ahead, according to RealtyTrac CEO James Sacchio, due to concerns over irregularities in foreclosure documentation. Several major lenders have halted foreclosure actions in some or all states after concerns were raised over improper documentation, and all 50 state attorneys general have launched an investigation into what has become known as “robo-signing.”
 
The term refers to a practice where lender staff and other representatives would routinely sign off on sworn legal documents used in foreclosures without reading them.
 
“If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process,” Saccacio said. “However, if the documentation issue cannot be quickly resolved and expands to more lenders we could see a chilling effect on the overall housing market.”
 

Delays could affect home prices

 
Saccacio said that if sales of distressed and foreclosed properties, which account for about one-third of current home sales, dry up, it could cause the “shadow inventory” of troubled homes to increase, creating more uncertainty about home prices.
 
The “shadow inventory” refers to the large number of homes that are expected to eventually be lost to foreclosure or have already been repossessed by banks but not yet put on the market for resale. Depending on how large it turns out to be, it could either further depress prices by flooding the market with additional distressed homes, or trigger a rebound in home values if it turns out to be smaller than expected.

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