Good News in the Foreclosure Numbers

by Bernice Ross, Ph.D. MCC
Owner, Teleclass4U.com, LLC and RealEstateCoach.com

Copyright © 2008
RealEstateCoach.com and Teleclass4U.com
All rights reserved in all media.

When RealtyTrac released the latest foreclosure numbers in Mid May, the newspapers all reported that “Foreclosures are up by 65 percent!”  Today’s column looks at the same numbers and arrives at a very different conclusion.

As I travel across the country speaking for various events, there is one message that keeps coming through loud and clear: “What are we going to do about the negative media?” Agents and clients alike are discouraged by the constant onslaught of negative news. The challenge is that the press reports what sells. Unfortunately, bad news sells better than good news.

To understand what is going on in the foreclosure market, you must first look at how many properties actually went through the foreclosure process in a given month. RealtyTrac reports the number of properties with “filings.” This includes any property that has received a Notice of Default, lis pendens, Notice of Trustee Sale, or Notice of Foreclosure Sale. An important point to note is that each of these filings takes place prior to foreclosure. The number that the press does not report is the actual number of “REOs,” i.e. the properties that have gone through the complete foreclosure process and are now owned by the bank.

RealtyTrac reports the filings plus the REOs as a total number. This is the number that is up 4.4 percent (not 65 percent) from March. The number that the press is reporting is the difference in foreclosures from April of 2007 as compared to 2008, not the amount of increase from the previous month.

Using the entire number of filings plus the total REOs, the number RealtyTrac arrives at is that one out of every 519 properties received a notice or experienced foreclosure. The press reports this data as if one out of 519 properties has been foreclosed upon. That’s 2/10 of one percent or approximately 2 properties out of every 1,000.

According to NAR, there are approximately 68 million homeowners in the United States. RealtyTrac appears to be reporting on all categories of property since the number they are using corresponds to approximately 126,000,000 units. The number of properties actually taken back by the bank was 54,574. That translates into .43 properties per 1,000. Thus, the numbers reported in the press as “foreclosures” are actually 4.65 times higher than the actual number of properties that have actually been returned to the lender.

The good news in these numbers is that out of the 243,353 filings, only about 20 percent actually end up back with the lender. This means that up to 80 percent of the borrowers are working out some sort of resolution with their financing problem. In fact, on Monday June 2, 2008, FHA reported that they had helped 200,000 owners avoid foreclosure by refinancing their mortgages.

The RealtyTrac numbers also contained some great news for some of the hardest hit parts of the country. What I didn’t see making headlines was the following:

Foreclosure rates were down in April 2008 as compared to April 2007 in 21 states. More importantly, many of the hardest hit states reported declines in their foreclosure rates: California (-0.04); Colorado (-2.91); Illinois (-2.78); and Nevada (-5.00). 

The California numbers are particularly impressive since they reported an increase of 20.66 percent in foreclosures in March 2008 as compared to March 2007. For the April rates to be down that far is excellent news. Although Florida had an increase from April 2007 to April 2008 of 16.56 percent, their March foreclosures were actually down by 6.76 from March 2007. Arizona was up in April, but down -4.67 percent from March 2007 to March 2008.

What’s even more interesting is to consider the foreclosure numbers excluding the three states hit hard by layoffs in the auto industry (Michigan, Ohio, and Indiana) and the four states where there was considerable over building and a tremendous amount of speculation (Arizona, California, Florida, and Nevada.)  These seven states accounted for 131,306 of the 243,353 filings, a whopping 54 percent of the entire total. In terms of total REOs, these states accounted for 32,931 of the 54,574 or over 60 percent of all properties that actually went back to the lender through foreclosure. If you remove these seven states from the mix and calculate the average number of properties that actually went back to the lender in foreclosure per state for the other 43 states, the number is 503!

The bottom line here is that the news is much better than what the banner headlines in the media report. The hardest hit states have all seen a decline in foreclosures in at least one of the last two months. Furthermore, organizations such as Acorn.org that assist sellers in working out their loans report that they are helping up to 60 to 70 percent of the people who contact them for help.  Granted, there are still plenty of people who are in trouble, but there are rays of sunshine breaking through, even in the hardest hit parts of the country. The question I would like answered is why isn’t this positive news being reported elsewhere?