Foreclosures dropped in the U.S. at a record pace in November. But these days a positive housing market news item has a dark foreclosure shadow lurking behind it. Foreclosures dropped because of robo-signing moratoriums, similar to a recent drop in underwater mortgages due to increasing foreclosures.
What the foreclosure drop means
Foreclosure notices in the U.S. fell 21 percent in November. According to RealtyTrac, an online clearinghouse for foreclosed properties, the month-to-month decline was the steepest ever recorded since the company began tracking foreclosure statistics in 2005. The number of homeowners cast out on the street after bank repossessions dropped even more — 28 percent from October. In a press release, RealtyTrack said foreclosures dipped below 300,000 a month for the first time since February 2009. A seasonal foreclosure drop is typical in November, but a delay in foreclosures in response to the robo-signing controversy is the main reason for the decline, which is expected to be temporary.
The robo-signing effect
Last fall the robo-signing controversy erupted when an employee at Ally Financial admitted in court to not reading foreclosure documents before he signed them. Robo-signing exposed negligent processing of foreclosure documents in a mortgage industry overwhelmed by the sheer number of foreclosures. Banks operating in states where courts are involved in foreclosure proceedings took a time out to clean up their acts. Most borrowers in foreclosure have gotten a temporary reprieve from repossession and eviction. Meanwhile, the unemployment rate rose, U.S. home values continued to fall, and banks are gearing up their foreclosure machines once again.
Foreclosures and housing values
Last week a drop in underwater mortgages recorded in the third quarter was credited to a surge in foreclosures, rather than an appreciation in U.S. home values. A foreclosure takes an underwater mortgage off the books. But some are still willing to search for a bright side. An analyst told MarketWatch that the November drop in foreclosures, albeit artificial, could help existing home sales in December and January. A reduction in inventory could start an upward trend in home prices that could result in a reduction of underwater mortgages that isn’t illusory.