Foreclosures are tale of 2 legal systems

Trends in serious delinquencies and foreclosures continue to be a tale of two legal systems.

According to loan data aggregator CoreLogic, in the 24 states where courts handle the foreclosure process, 13 saw foreclosure inventory rates increase in March when compared to a year ago. In contrast, the percentage of homes in the foreclosure process during March posted annual increases in only three of 26 nonjudicial foreclosure states.

The picture was much the same for serious delinquencies of 90 days or more — 15 of 24 judicial foreclosure states saw an annual increase in serious delinquency rates during March, compared with just five of 26 nonjudicial foreclosure states.

"Nonjudicial foreclosure markets like Nevada, Arizona and California are experiencing significant improvements in their shares of delinquent borrowers," said CoreLogic Chief Economist Mark Fleming in a statement. "Some judicial foreclosure states are also improving, like Florida, but not to the extent of nonjudicial markets."

Nine out of 10 states with the highest foreclosure inventory rates were judicial foreclosure states: Florida (12.1 percent), New Jersey (6.6 percent), Illinois (5.4 percent), New York (4.9 percent), Connecticut (4.5 percent), Maine (4.4 percent), Hawaii (4.3 percent), South Carolina (3.8 percent) and Indiana (3.5 percent).

The exception was Nevada, a nonjudicial foreclosure state with a 4.9 percent foreclosure inventory rate, the fourth highest in the nation. The three nonjudicial foreclosure states that saw increases in foreclosure inventory rates were Oregon (up 0.4 percent, to 3.1 percent), Mississippi (up 0.2 percent, to 2.8 percent), and North Carolina (up 0.4 percent, to 2.6 percent). Washington D.C., also saw foreclosure inventory rates climb by 0.2 percent, to 2.5 percent.

Nationally, CoreLogic said about 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in some stage of the foreclosure process during March, compared with 1.5 million homes at the same time a year ago.

CoreLogic counted 852,591 completed foreclosures in the 12 months ending in March,  and 3.5 million since the start of the financial crisis in September 2008.

Lenders don’t repossess or sell every home that begins the foreclosure process — some borrowers are able to get current on their loans again, or negotiate a short sale or loan modification.

Loan servicers grew their inventory of "real estate owned" or REO properties more slowly, as the pace of REO sales picked up. CoreLogic calculated the "distressed clearing ratio"  — REO sales divided by completed foreclosures — as 0.81 in March, up from 0.76 in February. The higher the distressed clearing ratio, the faster the pace of REO sales relative to completed foreclosures.

Compared to a year ago, the number of completed foreclosures has slowed," said CoreLogic CEO Anand Nallathambi. "Since the foreclosure inventory is also coming down, this suggests that loan modifications, short sales, deeds-in-lieu are increasingly being used as an alternative to foreclosures to clear distressed assets in our communities," as some industry observers had predicted would happen in the aftermath of the robo-signing settlement.

Among the top 100 metro markets by population, 35 showed an increase in the year-over-year foreclosure inventory rate in March 2012.

Foreclosure inventory rates for select markets, March 2012

Source: CoreLogic, March 2012.