The Breakdown | Explaining Southern California's economy

The sort-of silver lining in gloomy foreclosure statistics

Some new data on foreclosures was released today by RealtyTrac. Here's a summary from MarketWatch:

Foreclosure filings, which include those late-payment notices plus auction announcements and bank repossessions, rose 7% in August compared with July, hitting a total of 228,098 U.S. properties. But the filing rate fell 33% from a year earlier....And while the number of those first-time default notices sent rose 33% in August versus July, to a total of 78,880 properties, they fell 18% compared with a year ago, and they’re 44% lower than the monthly peak in April 2009....That is, the year-over-year data looks relatively positive, but the monthly data appears to be cause for worry — or, perhaps, relief, depending on your point of view.

The relief comes in the form of banks working through all their legal issues related to foreclosures and forseeing enough upside in the market to again repossess and re-sell properties. In other words, the banks are anticipating a bottom in the downturn and are lining up supply to sell into the rebound. 

This may work better in some markets than others. In Southern California, prices continue to fall, which may flatten the housing market for years and contribute to a very slow recovery.

Another reason to fire the foreclosure machine back up is the securitization market. For home mortgages, there hasn't been one that isn't dependent on government backing since the financial crisis. Securitization is the process by which banks and other originators of mortgages sell those loans to intermediaries who slice them up in terms of risk and sell them to investors. You may remember that fraud and financial shenanigans on this front nearly brought down the global economy.

Could it be that banks, sitting on old bad loans, are ready to generate some new, good ones so that they can bring securitization back to something resembling its former glory? Minus the catastrophic risk and fraudulent behavior, of course.

Photo: Kevork Djansezian/Getty Images