Foreclosures dip - but hold the applause

Grim housing outlook

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NEW YORK (CNNMoney.com) -- Foreclosure filings dropped 7% from October to November, according a report released Thursday. But don't break out the bubbly. The tide of foreclosures may be ebbing now, but the flood isn't over yet.

"There are several indications that this lower activity is simply a temporary lull before another foreclosure storm hits in the coming months," James Saccacio, RealtyTrac's CEO, said in a statement.

November foreclosure filings fell to 259,085, or one for every 488 households in the nation, according to the latest report from RealtyTrac, the online marketer of foreclosure properties. That was down from October, but up 28% from November of 2007.

A total of 78,179 families lost their homes during the month, down 8% from October when 84,868 homes were repossessed by lenders. A total of 1,014,618 homes have been lost to foreclosure since the housing crisis hit back in August 2007.

November's decline in foreclosure filings is deceiving, according to Rick Sharga, RealtyTrac's vice president of marketing, because much of it is attributable to temporary foreclosure prevention efforts.

"The reduction is because Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) both announced moratoriums on foreclosures, while major lenders also put the brakes on foreclosure proceedings," said Sharga. "State moratoriums are also delaying the onset of foreclosures. But all that will only delay, not avoid them."

Sharga expects to see another good report in December, but a significant spike in foreclosure filings come January.

The economic climate is rapidly deteriorating and job losses are soaring - factors that are sure to exacerbate the housing crisis. And various forward-looking indicators show more trouble ahead.

For instance, the number of homeowners who fell behind on their mortgages hit a record 6.99% in the third quarter, up from 5.59% a year ago, according to the Mortgage Bankers Association.

Last week, Credit Suisse issued a report forecasting 8.1 million foreclosures by the end of 2012, accounting for 16% of all U.S. mortgages.

Meanwhile, evidence is mounting that current foreclosure-prevention efforts are falling well short of the mark.

A Dec. 8 report from the Office of Comptroller of the Currency stated that more than half of the borrowers who had their mortgages modified in the first half of 2008 are already delinquent again. Many of these delinquencies will turn into foreclosures in the coming months.

"A lot of those modifications are simply pushing back principal payments," said Sam Khater, senior economist for First American CoreLogic, a financial data and analytics company. "They're not reducing the level of debt. Many homeowners are in such bad shape that only much more drastic or radical modifications will help them."

To be viable, Khater added, most modifications will require lenders to make a significant principal reduction. And for the most part, that's not happening.

The former boom states mostly in the Sun Belt, as well as Midwestern industrial states hit hard by job losses, continue to bear the brunt of the foreclosure crisis.

Nevada had the highest rate of foreclosures. One of every 76 homes there received some kind of foreclosure filing - notice of default, notice of foreclosure sale, bank repossession, etc. - during November. Florida was second with one filing for every 173 homes and Arizona had one for every 198.

California had the highest total number of filings with 60,491, and the fourth highest rate; one for every 218 households. Michigan was the hardest-hit state outside of the Sun Belt, with one filing for every 309 households.

Among cities, Cape Coral-Ft. Myers, Fla., posted the highest rate of foreclosure filings with one for every 59 households. Las Vegas had the second highest rate with one for every 61 homes.