Where Have All the Foreclosures Gone?

Foreclosure fillings rise, shadow inventory remains.

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Not long after the national mortgage settlement was announced, I warned clients that the training wheels would come off and foreclosures would ramp up again.

Now foreclosure information firm RealtyTrac has confirmed that fact in its latest report, which shows that in 2012, foreclosure filings rose in more than half of the metropolitan areas they track.

Florida, where a massive foreclosure backlog is still clogging up the courts, is leading the pack. Tampa and Miami saw the biggest increases in foreclosure activity last year, and eight of the top 20 foreclosure rates in the nation belonged to Florida towns.

But despite hard data showing that foreclosure activity is picking up again, experts have blamed a tight supply of homes for sale—including foreclosures—for sharp year-over-year increases in home prices and disappointing monthly home sales numbers.

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 	MIAMI - SEPTEMBER 16: A Bank Owned sign is seen in front of a foreclosed home on September 16, 2010 in Miami, Florida. RealtyTrac, an online marketplace for foreclosure properties, released its U.S. Foreclosure Market Report for August 2010, which shows foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 338,836 properties in August, a 4 percent increase from the previous month.
MIAMI - SEPTEMBER 16: A Bank Owned sign is seen in front of a foreclosed home on September 16, 2010 in Miami, Florida. RealtyTrac, an online marketplace for foreclosure properties, released its U.S. Foreclosure Market Report for August 2010, which shows foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 338,836 properties in August, a 4 percent increase from the previous month.

So to paraphrase the 1960s folk singer Pete Seeger, "Where have all the foreclosures gone?"

While it has decreased, the shadow inventory—the backlog of bank-owned homes that remain off the market—is still lurking just out of our reach.

Banks never had much to lose by allowing these distressed homes to languish, and that remains true. In fact, they have a lot to lose if they put them on the market too fast. If these foreclosures were allowed to pour down instead of trickle out as they are now, banks would have to write off their losses en masse, and that simply would not benefit their balance sheets. Their capital reserves would plummet and we all know what happened the last time banks' capital reserve took a dive.

Wall Street continues to blame homeowners and the courts for why these homes are slow to come to market. That's why they continue in part to back legislation that will cram homeowners through rocket dockets, which will in theory force homes to come to market quicker. But due process will get left at the court's front door.

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Wall Street wants the option to bring foreclosures faster, but not necessarily to sell them off. They just want to be able to control the flow and supply of the inventory back into the marketplace in order to sustain their financial viability as well as control the supply.

Banks continue to set their own rules, and are able to do so because of regulators who are still afraid to stand up to them, fearful of an economic collapse they keep telling us will come if banks are actually held accountable.

The second line in Pete Seeger's song "Where have all the flowers gone?" is a "Long time passing" and it's going to take a long time before we see all of those foreclosures finally out from under the banks' balance sheets and back on the market.

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  • Real estate attorney Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law with his wife in 1989 in Fort Lauderdale, Fla. He is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.