The Truth Behind the Numbers on Declining Foreclosures

Recent first quarter research from numerous sources supports industry sentiment that the bottom of the current real estate cycle has been reached, and the new cycle has begun. In an unlikely alliance, government, the private sector, and even the media have all identified the unrelenting wave of foreclosures as the source of the problem and directed all of their efforts to hunting down the beast and killing it. Based on recent numbers, the foreclosure crisis could appear to be contained. According to the numbers:

• Overall foreclosure filings are down 19% -- their lowest level in four years.

• The volume of “pre-foreclosure” sales hit a record 109,593 transactions as homeowners and banks adopted short sales as a preemptive strike to losing their homes.

• Analysts monitoring mortgage delinquency rates, the accepted metric predicting foreclosure volume, are reporting continuing month-over-month declines in delinquencies.

• Credit-reporting agencies, well known for keeping falling FICO scores top of mind, are now proud to report that consumers shed mortgage debt to the tune of $350 billion over the last year and are continuing to trim the fat.

• The Obama Administration’s assault on the housing crisis through no less than 12 separate programs since 2009 have provided millions of distressed homeowners permanent modifications, refinancing opportunities, forbearances, short sale incentives and even in some cases, mortgage forgiveness.

While these are impressive metrics, the real estate industry would be wise to season its interpretation of the data with a dose of skeptical pragmatism. Too much emphasis is being placed on surveys and reports to validate a recovery instead of taking a hard look at what is transpiring on a day-by-day and case-by-case. Albeit mitigated, the foreclosure crisis is still very much alive and well.

When the pundits are silenced, and the analysts are deprived of their spreadsheets, what remains is a staggering number of homeowners, over 3.5 million, having lost their homes since 2008. No metric accurately represents this devastation on families, their surrounding communities, and the overall economy. Granted, foreclosure filings are at record low levels and continue to fall. Nevertheless, nearly 200,000 new borrowers received Notices of Default during the first quarter of 2012.

Looking at the crisis from the lender perspective, the numbers don’t fully portray the battle lenders face to minimize losses. While data publicizing lower defaults points to a possible end to the drag of REO on lender balance sheets, that end is years away and the current cost of loss mitigation has proven to be expensive. Case in point: recent settlements with individual states over foreclosure improprieties cost lenders $25 billion, and still provide loopholes for more claims. Tougher standards implemented to avoid lax processing of foreclosure filings require more auditing and personnel to implement. And clearly, lenders have been forced to accept larger losses on REOs and to embrace short sales to prevent further hemorrhaging. In short, the numbers use a wide brush to paint a possible outcome of the foreclosure crisis, but ignore the present reality that homes are still being lost today.


A more holistic approach is needed to properly measure the effectiveness of the war on foreclosures. To be fair, the real estate industry and consumers alike should feel real hope as a result of data showing a consistent downward trend in new foreclosures quarter after quarter. The housing industry is at its strongest place in three years and is getting stronger. However, we shouldn’t allow backwards-looking or forward-projecting reports distract us from the ever-present reality of the severity of the foreclosure crisis. Conditions are improving, but the battle is far from over. Success is measured not by aggregate numbers, but by one homeowner at a time who avoids a foreclosure.