RealEstateEconomyWatch.com

The May foreclosure numbers from Realty Trac show a six percent decrease in Foreclosure filings-default notices, scheduled auctions and bank repossessions-over April and several media outlets decided the report was good news.

Take a look behind the headlines. First, the foreclosure numbers for May are the third highest month on record, an 18 percent increase over a year ago.

But that’s just the beginning of the bad news. Repossessions and REOs are up two percent over April DESPITE the existence of moratoria in several large states including California, Ohio and Illinois. California’s moratorium which was criticized by consumer groups for too many loopholes, ended on May 22. The expiration of state moratoria will produce a spike in REO activity in the months to come. 

The next bad news is geographic. REOs were up 2 percent thanks largely to substantial increases in several states, including Michigan, Arizona, Washington, Nevada, Oregon and New York. This may be another sign that foreclosures caused by layoffs and the general economic crisis is surpassing foreclosures resulting from subprime, option ARM and other alternative loans as the leading cause of foreclosures. Only two these states, Nevada and Arizona, were leasing sites of subprime and opt A defaults. Michigan, New York, Washington and Oregon’s rising REO rates is more likely a function of lay offs.

The problem with these Good Old Fashioned Foreclosures (GOOFFs) is that they are impervious to the payment reduction strategy Sheila Bair incorporated in the Administration’s loan modification program. Only economic recovery will stop GOOFS. For more on this point, see Delinquencies: Trading One Nightmare for Another.

The last bit of bad news is the fact that it’s nearly six months since President Obama took office and five months since he announced his plan February 12 in Phoenix. To date, it has had no discernable impact on foreclosure rates; rather, they are soaring out of control at a double digit clip. It now looks as though the foreclosure plague that is ravaging real estate markets will continue unabated for at least another year. Real estate recovery cannot take place until foreclosures are under control.

U.S. Foreclosure Market Data by State – May 2009

Source: RealtyTrac