A Second Deluge of Foreclosures Just Beginning?

The number of foreclosures is rising and the new tidal wave hasn’t shown any sign of abating. But is this really the second deluge or just the ripple result of the $25 billion foreclosure robo-signing settlement?  In either case, all signs point to a steady increase in foreclosures. Foreclosure starts rose 12 percent in May and foreclosure sales increases by 10 percent the same month.  And that represents just a trickle of the foreclosure backlog created when the robo-signing settlement went through negotiations.

“The most significant impact of the settlement to date may have been the clarification of foreclosure standards for servicers,” according to a new report from Fitch Ratings. “The clarity has helped reduce some prior uncertainty as servicers waited for the final settlement terms. This may be reflected initially in increased foreclosure initiation rates, which rose to roughly 12 percent of delinquent loans in June. This is the highest figure since first half-2009.” (source)

While there is no way to predict the future, we could see a small wave of foreclosures hit the housing market in the coming months; but the numbers may be small compared to 2009 and 2010 levels. However, if the numbers are large enough, the new batch of foreclosures could depress housing prices in areas that are particularly hit hard. That might be good news for buyers; but could spell trouble for owners trying to unload real estate in an already saturated market.