In Massachusetts, the foreclosure crisis as we know it is over.
The causes are simple. A new state law, passed last year, which compels lenders to evaluate borrowers for modification before launching a foreclosure action, has made many servicers leery of launching any new foreclosure action in the state, lawyers who represent lenders told Banker & Tradesman. Combined with an improving real estate market which has lifted many borrowers out from underwater, the number of foreclosures so far this year has plunged to new lows.
“This decline is real and somewhat permanent,” said Barry Bluestone, an economist and head of the Dukakis Center for Urban and Regional Policy at Northeastern University. “We had an explosion in mortgages with limited documentation, people who wouldn’t have the best credit. We’ve been working through that reservoir of foreclosures, and now as that has happened one suspects we will go back to normal foreclosure rate, the kind that you have due to misfortunes that affect individual households.”
A review of data provided by The Warren Group, publisher of Banker & Tradesman, tells the tale. Throughout the first months of 2013, foreclosure numbers have been steadily dropping. This March, only 227 foreclosure deeds were issued – a drop of 74 percent from the 899 issued March 2012. For the entire first quarter, foreclosure deeds totaled 716, a near 71 percent decrease from 2,465 in the first quarter of 2012. Foreclosure petitions and auction announcements have posted similar declines, the first down 52 percent in the first quarter of 2013 compared to 2012, the latter down 73 percent.
If deeds, petitions and auctions continue at a similar pace for the remainder of the year, the 2013 could be the first year in which fewer than 3,000 foreclosure deeds were issued for the state since 2006, when 2,172 foreclosure deeds were issued.
That rate would still be well above the number of foreclosures issued during the peak boom years of the early 2000s, when rapidly rising prices meant that a borrower who got behind on a loan could quickly sell their home for a profit. From 2001 to 2005 there were fewer than 1,000 foreclosures statewide each year, with the nadir reached in 2003, when only 459 foreclosures were recorded.
But an annual tally of 3,000 foreclosures would match the pace of the late 1990s: there were 3,657 foreclosure statewide in 1995, 3,155 in 1996, 3,030 in 1997 and 2,150 in 1998. Those Clinton-era years were ones of a sound economy, rising stock market, and moderate interest rates – perhaps the last “normal” real estate market.
Personal Bankruptcies Down
It’s not just deeds that show the signs: personal bankruptcies, which tend to rise in tandem with foreclosure, are down as well, dropping from a crisis-era peak of 23,125 in 2010 to 16,107 in 2012, a decline of 30.3 percent. So far this year, bankruptcies in Massachusetts were down a further 31.8 percent from the first quarter of 2012, to 3,049 according to data provided by The Warren Group. National numbers reflect a similar picture: CoreLogic reported a 23 percent decline in foreclosures in March compared to the prior year, with the remaining distressed inventory concentrated in just a few states. Massachusetts was not among them. Indeed, according to the latest data from the Mortgage Bankers Association, among the 50 states and the District of Columbia, Massachusetts ranked 48th in foreclosures started in March, falling 8 basis points to 0.36 percent.
Foreclosure counselors caution that many homeowners remain in the process of seeking help or attempting to obtain a mod, and it will take considerable time to resolve these cases.
“We’re still seeing a large demand for assistance for pre-foreclosure counseling and post foreclosure evictions – our numbers have not really gone down,” said Nadine Cohen, managing attorney of the consumer rights unit at Greater Boston Legal Services. “We see the hardest cases, people who can’t get a [modification], people where the husband and wife have split up. We handle a lot of low-income cases, and for those people the economy has not really gotten better.”
Brenda Clement, executive director of Citizens’ Housing and Planning Association, which works with community development agencies across the state, said the organizations she’s in contact with are seeing fewer new cases come in the door.
But “there’s still a pretty heavy caseload, because while the [foreclosure] rates are coming down, there’s still a lot of cases and different assistance programs that are still in process, and they’re pretty hard to navigate,” Clement said. “When the real estate bubble burst, it wasn’t a pretty little soap bubble. It was a big, sticky wad of gum. We’re still scraping up the mess for a lot o individuals.”
There doesn’t seem to be a surge of new cases on the horizon. Fewer homeowners are falling behind on their mortgages, while banks are far more willing to offer modifications or accede to short sales rather than foreclose. According to the MBA’s latest numbers, while Massachusetts’s delinquency rate of 7.67 percent at the end of the first quarter of 2013 was higher than the national average of 6.75 percent, it is in decline, dropping 42 basis points from the fourth quarter of 2012.
“There’s actually good news on the servicing front these days – roll rates are getting better. There’s not as many loans ‘rolling’ into a delinquency state,” said William Frickie, an analyst with Moody’s Investors Services, who examines and grades servicers portfolios. “Servicers have gone through their portfolios and pretty much modified all the loans that they can.”
That fits in with the national picture, too: Real estate data and services provider LPS reported this month that that new problem loan rates (seriously delinquent mortgages that were current six months ago) have fallen below 1 percent for the first time since 2007, and are now approaching pre-crisis levels.
Even though the spigot may be slowly drying up, a continued drop of foreclosures may persist for many months. New laws and regulations passed during the crisis have lengthened the foreclosure timeline. But as prices continue to rise, fewer and fewer new cases will enter into the pipeline, as borrowers regain equity and are able to sell rather than let their home be seized.
