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Is the Foreclosure Crisis Over?

There was a huge drop in foreclosures in March 2013 compared to March of last year, an indication that the foreclosure crisis in Massachusetts is finally over.

A report by the Warren Group, a firm that tracks real estate data, shows that in Massachusetts petitions to foreclose decreased 82% during March of this year compared to March 2012. Lenders filed 284 petitions in March, down from 1,621 last year.

Petitions to foreclose are the first step lenders make in the foreclosure process.  In the first quarter of this year, lenders filed 2,080 petitions in Massachusetts, down 52% from 4,348 in the first quarter of 2012. This number is significantly lower than during the height of the housing crisis, when petitions to foreclose reached 9,008 for the first quarter of 2008.

Foreclosure deeds, which represent finished foreclosures, dropped by more than 74% to 227 in March 2013 compared to 889 in March 2012. There were 716 foreclosure deeds in the first quarter of 2013, a drop of 71% from 2,465 in the first quarter of 2012. In comparison, foreclosure deeds reached 2,827 in the first quarter of 2008.

Foreclosure Petitions and Deeds, Q1 2008 vs 2013

Nationwide, foreclosure rates are declining. A mortgage performance report by LPS, a provider of mortgage and loan data and services, found that rates of seriously delinquent loans that were current 6 months ago have fallen below 1% for the first time since 2007.

Why Have Foreclosures Decreased in Massachusetts?

Foreclosures in Massachusetts have declined due to better foreclosure prevention initiatives for borrowers and an improving real estate market.

The foreclosure prevention initiatives have made banks look at more options for their borrowers. For instance, last year a law was signed which requires banks to send notices to borrowers at risk of foreclosure about their right to pursue a modified mortgage loan. Another initiative, the HomeCorps program, funded from the $25 billion national settlement, has also contributed to the decline in foreclosures in the state by providing struggling homeowners with a range of foreclosure-prevention efforts.

More homeowners realize they can do a loan modification to avoid foreclosure. With improving home values and record low mortgage rates, homeowners who opt for a loan modification can make more affordable monthly mortgage payments and reduce their risk of falling behind.

Another reason there are fewer foreclosures in Massachusetts now is that more distressed homeowners in 2011 and 2012 did short sales rather than foreclosures. More of these homeowners learned with a short sale they could remain in the home until it’s sold, they could purchase another home sooner, their credit rating would improve faster, and in many cases they could get relocation assistance and their remaining mortgage debt forgiven with a short sale.

Improving Housing Market

The improving real estate market has also affected the decline in foreclosures.

Borrowers who had negative equity are realizing their homes are now worth more than they were even a year ago.  Home selling prices were up in March for the second month in a row this year. The average selling price for a home in Massachusetts in March was $321,227, up 5.17% compared to March 2012. Some towns and cities even saw double digit increases in home selling prices in the first quarter of this year compared to the same period last year.

We are now seeing 59% fewer foreclosures on the market this year compared to last year. In May of 2012 there were 1,313 foreclosures on the market and this year there are just 542. A decline in foreclosures on the market helps stabilize home prices. Improving prices help to reduce negative equity, a key factor in foreclosure rates.

There are still struggling homeowners, but rather than fall into foreclosure they are holding onto their homes since home values are slowly increasing. They are more educated about all the available alternatives to foreclosure and are finally seeing a light at the end of the tunnel. Homeowners now realize that the market is stabilizing, making them less likely to just give up and walk away from their homes and hang on instead.

The dramatic drop in foreclosures is another sign that the housing market continues to improve.

If you’re interested in buying a foreclosure, watch this video: Buying a Foreclosure

Sources:

The Warren Group: Drastic Drop in Mass. Foreclosure Activity in March

Lender Processing Services:  Mortgage Monitor Report April 2013

MLSPIN: Foreclosures On the Market: May 2013 vs May 2012