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The New Economy

Foreclosures: Lenders' tactics affect homeowners, home buyers

Foreclosures are being managed by banks like a pipeline, says RealtyTrac, which has implications for homeowners and home buyers.

By / September 16, 2010

A foreclosure sign is posted outside a home in Los Angeles Aug. 8. Actual foreclosures surged in August to their highest level since the start of the mortgage crisis, according to RealtyTrac.

Paul Sakuma/AP/File

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America's foreclosures crisis is morphing from a wave into a pipeline, with lenders apparently willing to slow the filing of default notices on the front end until they can process and sell the foreclosed homes they already have on the books.

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That, anyway, is the view of RealtyTrac, which released Thursday its latest report on foreclosures, showing that default notices fell 30 percent in August from a year ago.

Lenders' attempts to manage foreclosures has several implications for homeowners and would-be homeowners. For example:

  • If you're seriously delinquent on a home loan, it may take the bank longer than usual to get around to actually foreclosing on the property.
  • If you're looking to buy a house, the supply of foreclosed homes will be ample for more than a year and perhaps much longer.
  • If you're a homeowner concerned about home values, banks appear to be doing what they can to dispose of their troubled properties without rocking the market.

"I think you'll see a very managed, measured disposal of foreclosed properties," says Rick Sharga, senior vice president with RealtyTrac, an online marketplace for foreclosure properties based in Irvine, Calif.

The worst thing that banks could do is resell or auction off too many foreclosed homes at a time, he adds. "That would pretty much leave a smoking crater where the housing industry used to be."

Evidence that lenders are managing the flow comes from the latest RealtyTrac report. In August, just under 96,500 properties received default notices, the first step in the foreclosure process, where owners are informed they're in default. August marked the seventh straight month of decline.

August also saw foreclosures, where the bank actually takes possession of the property, climb to a record of nearly 95,400, almost exactly the number of default notices. That's probably not a coincidence.

"We believe that has a lot to do with trying to manage supply and demand," Mr. Sharga says.

He predicts "another year of foreclosure levels like we're seeing this year before things start to slow down somewhere in 2012. [And] we're among the more optimistic" forecasters, he adds.

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