Foreclosures expected to reach second, smaller peak in 2012

Foreclosures locally and in New Jersey declined in 2011, which should be welcome news for a residential property market weakened by the availability of distressed homes.

But much if not most of the improvement came from court-required delays in the processing of foreclosures in reaction to instances of improper handling such as the robo-signing of reams of paperwork.

As those delays end, filings will increase in 2012 and more bank-owned houses will reach the market, resulting in a second peak in foreclosure activity, predicts RealtyTrac, a foreclosure information and analysis service in Irvine, Calif.

Filings were still declining for counties in the region in the most recent data, but mortgage delinquencies were increasing. LPS Applied Analytics ranked New Jersey among the nation's five highest states for noncurrent loans in November.

Daren Blomquist, director of marketing communications for RealtyTrac, described the groundwork for a second peak in foreclosures and its consequence to the property market in the firm's "Emerging Foreclosure Trends for 2012."

U.S. foreclosure filings were lower for every month through November than in 2010, and foreclosures for last year are expected to be 30 percent below the 2010 peak when the final data is in. New Jersey foreclosure

activity dropped more than 50 percent.

But "foreclosure processing delays in 2011 have artificially exaggerated what would have been a slow, natural decrease in foreclosure activity off the foreclosure peak of 2010," Blomquist said in the report. "This artificial trough in foreclosure activity in 2011 will result in a corresponding double-peak in 2012."

At least the increase in filings this year will be slow and steady, which "should allow the market to absorb this inventory without another 20 or 30 percent hit to home prices," he said.

But the continued pressure of distressed properties is expected to keep homes from appreciating, leaving prices largely flat this year, he said.

RealtyTrac also predicts increases this year in the inventory and sale of bank-owned properties and in short sales - properties selling for less than is owed on the mortgage by agreement with the bank.

RealtyTrac's just-released November data for Atlantic County shows foreclosure activity still dropping, with 47 filings, down from 59 in October and 225 in November 2010.

Similar declines were seen in Cape May, Cumberland and Ocean counties.

The delays in foreclosure processing, however, merely mask the underlying trend of more homeowners unable to afford their homes, many due to the loss of employment.

This past week, Lisa Santos, her husband and two adult sons lost their Smithville house to foreclosure.

Santos said she lost her job at a marketing and advertising company in 2008.

Her husband's income as a mechanic at an auto dealer wasn't enough to cover the family's expenses and help relatives, she said, so they didn't pay the mortgage for a year and a half and wound up $25,000 in arrears.

Santos said she tried unsuccessfully to get the mortgage holder, Cape Bank, to modify the loan to make it more affordable.

She said she's working full-time again in marketing, but the bank wanted her and her husband to pay nearly half of the delinquent payments and add the rest of the arrears to the principal to restore the mortgage.

Charles "Chick" Pinto, executive vice president and chief marketing officer for Cape Bank, said the bank already had modified the mortgage for the Santos family in 2009, lowering the interest rate.

Pinto said the bank tried to help, but had been paying the property taxes on 706 Osprey Court since the Santos family quit paying its mortgage and needed to protect its interests.

Such delinquencies are increasing in the area, and they're likely to become foreclosures going forward.

In New Jersey, foreclosed and delinquent mortgages were 16 percent of all home loans in November, an increase of 7 percentage points from the year before, LPS said.

CoreLogic, a financial information and services company, released data this month showing increases in both foreclosures and delinquencies in area counties in October.

In Atlantic County, about 9 percent of mortgages were in foreclosure, up from a bit more than 7 percent in October 2010, while 14 percent of loans were 90 days or more delinquent, up from slightly more than 12 percent in 2010.

Similar trends were seen in Cape May and Cumberland counties.

This increase in mortgage delinquencies and the backlog of filings created by court delays will provide the push toward a second bump in foreclosures in the year ahead.