Foreclosures Rise 48% in May, Bank Repossessions Double

According to RealtyTrac, foreclosure filings rose 48% from a year ago and bank repossessions more than doubled in May.  The number of national foreclosure filings grew 7% from April, while the nationwide rate of default warnings increased 1% from April.  The rate of foreclosures is clearly still increasing, offering no respite for the housing market or investors in mortgages.

Nevada, California and Arizona posted the highest foreclosure rates in the US and New Jersey entered the top 10.  California and Florida accounted for nine out of the top 10 metro foreclosure rates for the second month in a row, with Stockton in the lead.  The deluge of unwanted foreclosed properties continues for beleaguered mortgage lenders as they repossessed 73,794 houses in May, pushing total REO's to 700,000.  

A quick back of the envelope calculation, (using $200,000 as a median price) would suggest that lenders repossessed $14.8 billion in defaulted properties in May, and $140 billion in total thus far, using RealtyTrac's numbers.  These totals may actually be conservative due to the high concentration of foreclosed properties in California, where medians are much higher than the rest of the US.  Assuming that the rate of repossessions per month stays constant for the next year, lenders are looking at repossessing an additional $177 billion in properties.  Since lenders never planned on being in the property management business and are burdened with properties they can't offload in the current environment, they will look to sell properties in bulk auctions and continue to slash prices to move inventory.  That implies that home prices will continue to decline, default rates will march higher, and recovery rates on defaulted mortgages will decline.  Recent action in bank stocks is evidence that investors are finally awaking to the dismal fact that the worst may not be behind us.