NEW YORK (CNNMoney.com) — Could the foreclosure plague be ending?
Foreclosure filings were down 3% in October, the third consecutive month-over-month dip, according to RealtyTrac, the online seller of foreclosed homes.
To be sure, foreclosure rates are still elevated from a year ago: They’re up 18% compared with October 2008. But the month-over-month decrease followed a 4% drop in filings during September and a 1% fall in August.
“Three consecutive monthly declines is unprecedented for our report, and, on first blush, an indication that the foreclosure tide may be turning,” said James Saccacio, RealtyTrac’s CEO, in a prepared statement.
He cautioned, however, that three consecutive singles does not constitute a hitting streak. So there still may be dark days ahead.
“The fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery,” he said. “And despite all the efforts and resources directed at helping homeowners avoid foreclosure, we continue to see foreclosure activity levels that are substantially higher than a year ago in most states.”
Broad economic distress, such as the rising unemployment rate, has RealtyTrac spokesman Rick Sharga thinking that declining foreclosures may be artificial rather than a real trend. “Processing delays and legislative actions are slowing down foreclosures,” not actual improvement in the market, he said.
The slowdowns include banks taking time to judge whether some loans are eligible for the Making Home Affordable program, President Obama’s foreclosure-prevention initiative that was passed last spring.
And new state-level regulations have also lowered foreclosure statistics. One such rule that took effect July 1 in Nevada allows homeowners who receive notices of default to demand mandatory mediation with their lenders.
As a result, “There was a 27% drop in filings in October in Las Vegas,” said Sharga. “That hasn’t happened in, like, forever.”
Those factors may have especially delayed bank repossessions. RealtyTrac reported 77,077 REOs in October, down 12.2% compared to September, when nearly 88,000 homes were lost. For the year, there have been a total of 700,929 properties taken back by banks.
One positive trend is that home prices have recorded modest gains over the past few months. As a result, fewer mortgage borrowers owe more than their homes are worth. And that’s good news for the foreclosure rate.
Foreclosures require a double trigger, said Sharga. The first is that mortgage borrowers must have experienced a financial setback, such as medical bills, divorce, unemployment and the like.
The second trigger is owing more on the mortgage than the home is worth. Millions of borrowers are in that position: More than 20% of borrowers are underwater, according to Zillow.
Most will continue to pay off their mortgages. However, if a family member loses their job or someone gets sick or the loan resets to a much higher interest rate, that’s when the home may be lost.
Homeowners with positive home equity are in less jeopardy. Even if they run into unexpected expenses or periods of unemployment, they can tap their home value, via a home equity loan or cash-out refinance, to tide them over.