Even as the nation's foreclosure rate continues to fall, states with court oversight of the foreclosure process are lagging behind, potentially delaying their housing recoveries.
The Mortgage Bankers Association said Thursday that 4.1% of mortgage loans on one-to-four-unit homes—about 1.9 million households—were in the foreclosure process at the end of the third quarter, down from 4.4% a year earlier and the lowest level in 3½ years. The national average, however, masks big differences between the states. Among the 12 states with foreclosure rates that exceed the national average, 11 of them require banks to take back properties by going to court.
Foreclosure rates stood at 6.6% in those "judicial" states in September, while they have dropped sharply to 2.4% in the "nonjudicial" states where banks face fewer hurdles to foreclosure. Foreclosures have always taken longer in states with judicial review, but in recent years, the sheer volume of cases has overwh elmed courts, and the "robosigning scandal" that hit lenders added to the delays. Judicial review may give troubled homeowners more time to work out problems, but critics of the system say the delays are postponing states' housing recoveries.
"The distinction between the judicial and the nonjudicial states is, if anything, getting sharper," said Michael Fratantoni, the MBA's vice president of research. The upshot is the housing recovery is likely to be "muted" in judicial states, said Mark Zandi, chief economist at Moody's Analytics. "Some markets are still going to suffer more price declines," he said.
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