The foreclosure wave is still out at sea.

  • April 3, 2012, 9:56 AM  wall street journal

By Nick Timiraos


For months, housing pundits have warned that banks were likely to jumpstart the foreclosure process after finalizing their $25 billion settlement with the federal government and 49 state attorneys general.

But so far, there’s little indication of a lift in foreclosures. The number of newly initiated foreclosures actually fell in February from January and from one year ago by around 15%, according to Lender Processing Services. That marks the 11th straight month in which the level of foreclosure “starts” has fallen versus the same month in the previous year.

True, newly initiated foreclosures jumped by 28% in January from December, but much of that increase was driven by a surge in repeat foreclosures. In other words, banks were restarting the foreclosure process on properties that had already been in foreclosure before.

To be sure, the settlement could simply delay the inevitable uptick in foreclosure activity because banks still have a laundry list of requirements in the settlement. “It could potentially slow things down,” said Herb Blecher, vice president at LPS. “We’ll believe it when we see it at this point.”

The Obama administration said the settlement would require banks to reach out to more borrowers. At the same time, officials said it would also help provide clarity by avoiding a maze of state lawsuits that could further slow down the foreclosure process.

The problem is that banks’ processing difficulties may be more complicated than any settlement can address. Judges across the country may not care if banks have settled allegations of wrongdoing with state officials if those same banks are still unable to properly document ownership of mortgages in their courtrooms.

“There are operational issues and there are legal issues that are generating these fits and starts, and this sporadic movement of loans,” said Mr. Blecher.

Banks started the foreclosure process on 172,500 loans in February, which is the third lowest level of the past four years. Only November and December of 2011 saw lower levels of foreclosure starts.

Tuesday’s report from LPS shows that mortgage delinquencies fell to 7.6% in February, the lowest level since August 2008. Delinquencies tend to fall at the beginning of the year. Still, about 4.1% of all loans were in the foreclosure process, near the highest levels of the crisis


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