Pace of Foreclosures Likely to Pick Up as Banks Wade Through Glut

Foreclosures increase in 2012

Expect to see more foreclosure signs in 2012, as banks push more homes through the foreclosure process.

Foreclosures rose in January 2012, a sign that banks are beginning to unclog the foreclosure pipeline.

According to RealtyTrac Inc., January foreclosure repossessions rose 8 percent from the previous month, and total foreclosure filings were up 3 percent from December.

The “robo-signing” impact

The January increase comes after months of foreclosure filing stagnation. Many lenders put a temporary hold on foreclosures in mid-2011 as lawmakers dealt with the “robo-signing” scandal.

The scandal revealed that employees of five major banks (Wells Fargo, Citi, Ally/GMAC, JPMorgan Chase and Bank of America) were involved in deceptive foreclosure activity. Aiming to speed foreclosures along, employees at the settling banks admitted to forging notary signatures or blindly approving foreclosures.

Those errors proved to be costly for the five banks, who recently agreed to a high-dollar settlement (in part to avoid further legal action). The settling banks will have to pony up $25 billion for homeowner assistance programs.

Lenders tread carefully

The well-publicized robo-signing scandal put lenders on their toes. In mid-2011, cautious lenders began tightening the reins on foreclosures to ensure lawful behavior. Many lenders were forced to refile foreclosure documents and re-evaluate pending foreclosures, resulting in significant delays.

As a result, 2011 foreclosure filings dropped to their lowest annual total since 2007.

Glut begins to clear

One benefit of the robo-signing scandal is that comprehensive rules for foreclosure proceedings have finally been defined. Lenders are now held to a universal list of legal obligations when processing a foreclosure.

The new guidelines helped clear confusion and have prompted lenders to resume foreclosure filings. The increase in January foreclosure filings could be evidence that the foreclosure logjam is beginning to clear.

2012 foreclosure forecast

January 2012 foreclosure filings are still down 19 percent from January 2011, but RealtyTrac expects those numbers to increase throughout the year.

“Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw,” said Brandon Moore, CEO of RealtyTrac.

RealtyTrac expects foreclosures to rise 25 percent in 2012, affecting a total of 1 million homes. Last year, lenders repossessed 804,000 homes through foreclosure.

Photo courtesy of taberandrew