Foreclosures Are Down. How Is That Bad News?

BY Dante Chinni  May 13, 2011 at 11:49 AM EST

Looking at the housing market is enough to give anyone a serious dose of cognitive dissonance. Take the April foreclosure numbers.

The data, just released this week from RealtyTrac, shows what could only be labeled, at first blush anyway, as a major improvement. The figures were down 9 percent from March and 34 percent from April 2010. Foreclosure activity is at a 40-month low. Can an economic turnaround be far behind?

Flickr Creative Commons/taberandrew

But home sales and construction are non-starters. That entire sector of the economy seems, at the moment, to be frozen. What’s going on?

Foreclosures, ultimately, are processes started by banks when they are dealing with severely delinquent home loans. It’s up to the banks to get them started, and right now they simply seem less interested in that option. Why? The robo-signing problem, where thousands of homeowners were pushed into foreclosure without the proper processes, is part of it.

But another reason, says Rick Sharga, senior vice president at RealtyTrac, may be that banks don’t want any more bad loans on their books. They are inundated with foreclosures and simply can’t process anymore now. So they have tens of thousands of delinquent loans on their books that they are not yet pushing forward.

And that may have serious implications for the coming 2012 presidential race, and for the broader economy as whole.

Through the Patchwork Lens

It’s impossible to know exactly where all those delinquent loans are. Until the banks file notices on them, they are potemkin properties. Everything looks fine on the surface — the residents are still there and there is no notice on the door — but look a little closer and there are serious problems.

And while we can’t pinpoint the location of those homes, from its running analysis of foreclosures, Patchwork Nation can assume with a reasonable amount of certainty that they are based in three of our county types: the Boom Towns, that prospered in the housing gold rush, the wealthy Monied Burbs, and the Industrial Metropolis big city counties.

Those three county types not only hold the most people, about 190 million, they’ve also seen the biggest spikes in foreclosure activity since the housing crunch began.