Turn On The Lights, Watch The Roaches Scatter Part 87

Foreclosuregate is baaaaaaaaaack, and just as predicted, the massive settlement between the various states Attorneys General and the mortgage giants has resulted in the complete lockup and lockdown of the housing market.  Foreclosures have now all but ground to a complete halt.

Foreclosure filings in the U.S. fell to a five-year low last month as lenders sought to avoid seizing property and a housing recovery showed signs of taking hold.

The number of default, auction and seizure notices sent to homeowners in April totaled 188,780, down 14 percent from a year earlier and 5 percent from the previous month, according to RealtyTrac Inc. It was the lowest tally since July 2007, before the onset of the biggest housing crash in seven decades, the Irvine, California-based data seller said today in a report.

The “gradually rising foreclosure tide” forecast by RealtyTrac after a February settlement by the nation’s biggest mortgage servicers over faulty practices has yet to materialize, limiting the number of properties on the market and propping up prices. Banks are finding alternatives to home seizures, selling distressed property for less than the amount owed on the mortgage, known as a short sale, or modifying loans for borrowers struggling to keep up payments while an improving economy is helping to ease defaults.

“Things are getting better and the number of vulnerable households is going down,” Paul Willen, senior economist at the Federal Reserve Bank of Boston, said in a telephone interview. “The pool of borrowers is much more stable than it was two or three years ago.”

The U.S. mortgage delinquency rate fell in the first quarter to 7.4 percent, the lowest level in more than three years, the Mortgage Bankers Association said yesterday. The rate peaked at 10.1 percent in the first quarter of 2010 and was last lower in the third quarter of 2008, at 6.99 percent. 

So this is good news, right?  Sure, the same way limited bleeding around a steel spike in your chest is "good news" because you have a blocked aorta as a result.

The lack of foreclosures is a symptom of serious, serious sickness in the housing market.  The foreclosure logjam favors the banks, because at this point they don't have to take the losses until they repossess.  If they drag their feet and the foreclosure process takes a couple years, well nobody loses.

You know, except for property tax collection and the whole urban blight thing.  The fact of the matter is once this foreclosure blockage crumbles, the market is going to basically tank.  Whether or not it happens before the November election or not, I couldn't tell you.  I'd say Wall Street wasn't crazy enough to commit suicide, but they know they'll get bailed out again if the economy collapses.   On the other hand, they're getting free money and no losses now by sitting on these foreclosures and doing nothing.

We'll see.  But this is going to be brutal when this particular boil gets lanced.