Foreclosure Tsunami still waiting

For at least the last six months or so, a lot of people were talking about a “new wave” of foreclosures threatening to smother the U.S. housing market in gloom once again.

The reasoning was that because of the “robo-signing” scandal, and the subsequent foreclosure freezes, a huge number of foreclosures had been put on pause, and that the banks would eventually have to deal with their delinquent borrowers, meaning foreclosures would re-start in a big way.

According to data released this week by LPS Applied Analytics and CoreLogic, the waters are still relatively calm: no big waves on the horizon just yet.

LPS’s March “Mortgage Monitor” report shows that while foreclosure inventory remains near-historic highs, and newly started foreclosures are up 8.1% on a monthly basis, they’re still 31.1% below where they were in March 2011. Delinquencies are down 8.8%. The number of borrowers who are either in foreclosure, or 90 days behind on their mortgage payments is down, too, by 6.7%.

CoreLogic’s monthly foreclosure report, released Tuesday, has similar results.

March of this year saw 69,000 completed foreclosures, compared with 85,000 in March 2011, CoreLogic said. Delinquency rates remain unchanged, at their lowest levels since July 2009, in the thick of the financial crisis. And in some of the most troubled markets for foreclosures in the past, like Nevada, Arizona and California, delinquency rates are actually improving, a promising sign for the stability of those markets.

“What we’re seeing so far in the data, it doesn’t amount to a flood. There are regional bursts of activity here and there, but not that wave of foreclosures that people were expecting,” said Herb Blecher, senior vice president at LPS Applied Analytics.

One reason for the low numbers could be February’s $25 billion foreclosure-servicing settlement.

It requires banks to spend $17 billion to help homeowners, receiving different “credits” depending on the type of relief. About $10 billion of that amount must go towards writing down loan balances for borrowers who are at risk of foreclosure. Banks can also get credit for “short sales” — those that allow the borrower to sell the property for less than the total mortgage amount.

With all of this going on, it may take time for banks to sort through their books to figure out which borrowers are eligible for relief. As a result, one of the former believers in the looming foreclosure wave isn’t so sure anymore.

“We may have plateaued at a level of foreclosure activity that we’re not likely to exceed,” said Rick Sharga executive vice president of Carrington Mortgage Holdings.

Of course, things could get worse. With millions of potentially troubled loans in the so-called “shadow inventory,” a big wave could always hit.

But for now, it’s fairly calm waters. Leave the Dramamine at home.