Analysts say decline in foreclosure starts is temporary

December 5th, 2012

The drop in foreclosure starts is likely to due to new reforms, rather than homeowners' improving financial positions.

Data shows that the number of foreclosure starts fell in October, but industry professionals say the reduction is likely temporary and will pick up when lenders adjust to new mortgage rules.

Foreclosure starts fell 21.9 percent in October from the previous two months, and 48 percent on a year-over-year basis, according to Lender Processing Services. However, experts theorize that foreclosure starts are likely to increase again after banks prepare themselves for new mortgage rules, which require a mortgage service company to abide by a new borrower notification requirement.

“This decline coincided with the implementation of new procedural changes outlined in the National Mortgage Settlement, which requires, among other things, that mortgage servicers provide written notice to borrowers 14 days prior to referring a delinquent loan to a foreclosure attorney,” said LPS Applied Analytics senior vice president Herb Blecher. “This has resulted in what is likely a temporary slowdown in foreclosure starts that we do not believe is indicative of a longer-term trend.”

Despite fluctuations in foreclosure starts, inventory for distressed homes has declined significantly, as more home seekers purchase these properties at steeply discounted rates.