'Good News' on Foreclosures Not All Good

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When is good news not as good as it seems? Well, the foreclosure numbers from the first quarter of 2011 offer a good example.

The news seems positive at first blush, as headlines declare declining foreclosure activity: Foreclosure filings hit three-year low. But behind the numbers, the story is more complex, says Rick Sharga, senior vice president of RealtyTrac, the firm that monitors foreclosures.

Looked at through Patchwork Nation's 12 county types, the wealthy Monied Burbs are home to a large number of the most severely affected communities.

With roughly four foreclosures for every 1,000 homes in the first quarter, the Burbs rank second in our analysis -- just behind the big city Industrial Metropolis counties, where properties like expensive condos drive much of the problem. This represents the first time since Patchwork Nation began examining the foreclosure problem that the Burbs scored so high compared to the other county types.

That's worrisome because those counties drive much of America's consumer economy, as we have noted in more in-depth reporting. And even as the unemployment rate drops in those places, as we wrote earlier this week, these numbers serve as a reminder that all is not well in middle-class and upper-middle-class America.

Real Declines?

Still, there appears to be some good news in these numbers.

The foreclosure numbers seem to be settling down somewhat in the Boom Town counties that grew in the early half of the last decade and were hammered early in the foreclosure mess. The numbers aren't "low" there, but at 3.41 foreclosures per 1,000 homes in this quarter, things have improved.

And, yes, there are some other declines in these numbers, like the drop since 2008.

But the troubled spots are still troubled, and there some signs of things worsening elsewhere, spreading into the Burbs and more distant rural areas.

And a more important a question is, how real are the numbers being reported? The robo-signing scandal, in which many homes were pushed into foreclosure improperly and prematurely, has led banks to hold back on pursuing action on troubled properties. No one knows for certain how many properties this affects.

And there is simply the way the RealtyTrac numbers are structured, Sharga says. The RealtyTrac system looks for new foreclosure activity, but not "refilings," where banks re-initiate proceedings on properties where they had ceased action. That's what happens after a bank has gone back over the record and determines that it wants to go forward with a foreclosure.

So, the current reported figures that show 681,153 properties in some state of foreclosure in the first quarter miss a big piece of the equation.

"We've had about 60,000-70,000 refilings a month," Sharga said. "If we included refilings, we would have seen about 900,000 in the first quarter."

Because the robo-signing mess is taking a long time to sort out, banks are going slow -- and they may for some time.

And the net result is we may never get a big rush for foreclosures, Sharga says, but a slow drip, drip, drip where the housing market really doesn't get worse, but also doesn't get better. The thought used to be that 2011 would be the high-water mark for foreclosures, but now, he says, it may end up being 2010, with the rest dribbling out slowly over time, dragging out the poor market.

He now says he expects the market to get back to some semblance of normal in late 2014, probably 2015.

Where Will the Problems Fall?

When everything is sorted out, it may be that the drops in the Boom Towns are a function of re-filings or of foreclosures being held back. And then there is the question of what relatively higher foreclosure numbers in the Monied Burbs mean.

Are they relatively higher because a large number of the foreclosure robo-signings occurred somewhere else and they just aren't showing up in these filings? That's a very real possibility. Those places were full of bad loans and lenders may have thought they could simply slide paperwork through without considering it fully.

Or is much of the robo-signing backlog, and the refiling, still to come in the Burbs? That would probably be a worse outcome for the overall economy because it means consumer spending in those places would slow, possibly dramatically.

And none of this, of course, takes into account the falling homes prices around the country -- a phenomenon that is still occuring.

So hold the champagne. The foreclosure mess may look better on paper, for the moment, but the problem is still far from being resolved.