Foreclosure Load Lightens, But Don't Cheer Yet

NEW YORK (MainStreet) -- Foreclosure is a horrible experience for the homeowner, one to be kept at bay as long as possible. But the economy will probably be better off if foreclosures come faster, helping put this dampener of growth behind us.

The news on the foreclosure front, while not wonderful, is getting a tad better.

“Nationally, the number of borrowers in the foreclosure inventory decreased by 115,000, a decline of 7.6%, in February 2012 compared to February 2011,” CoreLogic, the market-data firm, reported recently.

Mark Fleming, CoreLogic’s chief economist, said the reduced inventory was largely due to an increase in sales of "real-estate-owned" properties, the category that includes homes that lenders have repossessed.

Foreclosures remain a serious impediment to economic recovery. Typically, a foreclosed property sells for far less than it was worth when it was last purchased. That drags down prices of other homes that must compete with foreclosures for buyers. Foreclosures also represent losses for lenders. Having been burned, lenders now have tough loan standards, making it hard for even credit-worthy borrowers to get mortgages. That reduces demand, which also helps keep prices from rebounding.

“Approximately 1.4 million homes, or 3.4% of all homes with a mortgage, were in the foreclosure inventory as of February 2012, compared to 1.5 million, or 3.6%, in February 2011 and 1.4 million, or 3.4%, in January 2012,” CoreLogic said.

It is impossible to know how many homeowners who are now current on payments will fall behind later and enter the foreclosure process. Growing employment should help reduce the numbers of distressed homeowners, but employment gains have so far been modest, and an economic jolt could cause employers to stop hiring and resume cutting.