Foreclosures stall unexpectedly in February

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In an unexpected reversal, both newly started foreclosures and finalized foreclosures dropped precipitously in February.

So-called foreclosure starts fell 15.2 percent month-to-month. Foreclosure sales, the final stage of the process (not sales of already bank-owned properties) fell 19 percent month-to-month, according to a new report from Lender Processing Services.

Most had expected both starts and sales to ramp up, following the $25 billion dollar settlement between five of the nation’s largest banks and state attorneys general and federal agencies over the now infamous “robo-signing” scandal. The drop in finalized foreclosures was nationwide, in states where a judge is involved in the process as well as in non-judicial states.

“For both foreclosure starts and sales, we’re finding that so far, the sustained increase isn’t there, though we do see sporadic ‘bursts’ of activity,” says Herb Blecher of LPS Applied Analytics. “These are sometimes focused around particular investors (i.e., Fannie Mae and Freddie Mac foreclosure starts) and may reflect seasonal trends, loss-mitigation activities, legislative impacts, or other operational factors. We can’t say specifically what those bursts correlate to, because we just don’t see that in the data.”

This sudden stall, however, if prolonged, could lead to an overall drop in home sales, given that foreclosures are such a large share of the market. That has at least one well-known analyst warning of more problems ahead for housing.

“Through relentless meddling with delusions that ‘foreclosures are bad,’ they effectively destroyed the macro housing market,” says California-based mortgage analyst Mark Hanson, referring to government intervention in the housing market. “Contrary to popular thinking, the eradication of foreclosures will lead this housing market into paralysis, not recovery.”