Status of Residential Foreclosures?

Is the U.S. residential foreclosure crisis finally come to a conclusion?

Is the U.S. residential foreclosure crisis finally come to a conclusion? Is it now in the dustbin of history as an unpleasant memory, a major complicating factor in the Great Recession, and one of the stumbling blocks of the recovery? If so, good riddance. The latest report on residential foreclosures by CoreLogic suggests that might be the case. The company said on Monday that the national foreclosure inventory fell by 24.9 percent year over year in April 2015 to about 521,000 houses, or 1.4 percent of all residences with a mortgage. That’s the 42nd month of consecutive year-over-year declines — almost four years’ worth, which is definitely a positive trend.

Also in April, CoreLogic reported, the 12-month sum of completed foreclosures continued to decline, dropping by 19.8 percent to 538,000 since April last year. The inventory of seriously delinquent mortgages dropped to 1.4 million loans, a 22.1 percent decline since last year. The five states with the largest annual drops in their foreclosure inventory were Florida (down 45.6 percent), Connecticut (down 35.8 percent), Illinois (down 33.1 percent), Idaho (down 32.8 percent) and Oregon (down 32.3 percent). Florida’s a particularly noteworthy case, since it’s long been one of the poster children for the foreclosure crisis. There was a time not so long ago when entire Florida neighborhoods were (seemingly) marred from one end to the other with foreclosed properties no one would buy, a situation that puts a drag of leasing and development of nearby commercial properties, since residential health is a key component of a healthy local economy.

Moreover, there were 47 states that posted year-over-year declines in the foreclosure inventory in April, and 19 of those states had decreases of more than 20 percent. Only Wyoming (up 46.6 percent), the District of Columbia (up 32.9 percent), Massachusetts (up 22 percent) and West Virginia (up 3.7 percent) suffered annual increases in the foreclosure inventory in April. So it would seem that foreclosures are back to more “normal” levels and that indeed the crisis has passed. But that’s not quite the case.

There’s still an important distinction between judicial foreclosure states and non-judicial foreclosure states. CoreLogic noted that as of April, judicial foreclosure states continue to have higher foreclosure rates on average than non-judicial states, 2.3 percent compared with 0.7 percent. One reason is simply the time involved in a judicial foreclosure, since lenders must provide evidence of delinquency to the courts to move a borrower into foreclosure. In non-judicial foreclosure states, lenders can issue notices of default directly to borrowers without court intervention. The non-judicial rate is now roughly on par with pre-recessionary levels. By contrast, the judicial state rate, while down, is about the same as in the early months of the recession.