Home Repossessions Hit Record High

The increase in repossessions comes even as notices of default—the first step in the foreclosure process—fell 22 percent from a year earlier to their lowest level since November 2008.
Courtesy of MidSouth Federal Credit Union

Banks repossessed a record number of homes in May, an ominous sign for a real estate market that has seen demand slide substantially in recent weeks. Nearly 94,000 properties were repossessed by lenders, an increase of 1 percent from April and 44 percent from a year earlier, according to RealtyTrac's most recent U.S. Foreclosure Market Report. “We are going through the eye of the storm,” said Patrick Newport, an economist at IHS Global Insight. “Banks are taking over properties at a record rate right now.”

The rise in home repossessions is linked to developments in the Obama administration's housing rescue initiative, says Celia Chen, a senior director at Moody's Analytics. The administration reported that 278,000 trial mortgage modifications have been canceled through April. As banks holding such loans learn they don't qualify for federal assistance, they can resume foreclosure proceedings.

“You can't save everybody,” said Mike Larson of Weiss Research. “It's been a year and change since [the Obama administration's housing rescue] was rolled out and it's at a point now where some of these borrowers are going to be lost no matter what you do for them.”

With their books already cluttered with distressed properties, many banks have delayed sending out default notices—which initiate the foreclosure process—until they have completed other transactions, said Rick Sharga of RealtyTrac.

“Typically, you don't get a foreclosure notice until you are 90 days past due,” Sharga said. “Everybody I've talked to knows somebody who has been in their house for over a year and hasn't made a payment and still hasn't received a notice.”

These repossessed properties will eventually find their way onto the market, adding to a still-elevated inventory and working to drag home prices lower. The inventory of unsold homes rose nearly 12 percent in April, to just over 4 million homes. Demand for mortgage loans, meanwhile, has sputtered following the expiration of the federal home buyer tax credit.

This increase in bank repossessions will have a depressing effect on home prices. If and when the labor market improves, workers will be able to afford to buy foreclosed and short-sale homes, which will give hope to landscape professionals.

– Courtesy of US News & World Report