Foreclosures Down, But Not Out

NEW YORK (TheStreet) -- The number of homes lost to foreclosure continued to decline in October, but the overall levels of foreclosure remain uncomfortably high.

Completed foreclosures declined to 58,000 in October, down 17% from October 2011 and 25% from the previous month, according to Core Logic data released Monday. Foreclosures in September were upwardly revised to 77,000 from 58,000. The larger-than-usual revision was in connection with an annual online auction of delinquent tax properties in Wayne County, Michigan.

Approximately 1.3 million homes, or 3.2 percent of all homes with a mortgage, were in the national foreclosure inventory as of October 2012 compared to 1.5 million, or 3.6 percent, in October 2011.

"A lower foreclosure inventory is a good indicator of improving housing markets," said Anand Nallathambi, president and CEO of CoreLogic. "The downward trend in foreclosure inventories over the past year is yet another signal that a recovery in housing is gaining traction."

The decline in foreclosures has been welcome, defying early predictions of a "tidal wave."

The big mortgage servicers- Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells fargo (WFC) and Ally Financial have pulled back from foreclosures after a $25 billion mortgage settlement over illegal foreclosure practices, forced them to comply with new servicing standards and pursue alternatives to foreclosures such as short sales, refinancing and loan modifications.

Laws in states such as California and Nevada have also made it tougher for banks to foreclose.

Exceedingly long foreclosure timelines has also led to the drop in foreclosure inventory. In Judicial states where the bank is required to prove the borrower is delinquent in court before initiating foreclosure action, the process can take years, with courts increasing scrutiny of cases following the "robo-signing" scandal.

The average number of days a mortgage is in foreclosure from the notice of default to completion stood at 1072 days in New York and more than 900 days in Jersey in the third quarter, according to RealtyTrac.

The foreclosure tide has not happened, because there "simply isn't the system bandwidth to handle them," Georgetown University Professor Adam Levitin notes in blog Credit Slips . "Servicers really can't move significantly more foreclosures through the courts/trustee systems if they wanted. If I started a foreclosure in New York state today, I probably wouldn't have title and possession until early 2015."

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