Foreclosures eased in January

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NEW YORK (CNNMoney.com) -- The frantic pace of foreclosures eased in January, according to a monthly report released Thursday.

Foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 274,399 U.S. properties during January, down 10% from December, according to RealtyTrac, the online marketer of foreclosed homes. That was still 18% higher than January 2008.

Lenders repossessed 66,777 homes in January. A total of 1,081,395 homes have been lost to foreclosure since the housing crisis hit back in August 2007.

RealtyTrac attributed a large part of the decline to foreclosure moratoriums imposed by mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) as well as other lenders and some states.

"The extensive foreclosure efforts on the part of lenders and government agencies appear to have impacted the January numbers," RealtyTrac CEO James Saccacio said in a prepared statement.

The trend toward foreclosure moratoriums has gained considerable momentum lately.

On Wednesday, the government's Office of Thrift Supervision (OTS) urged OTS-regulated institutions to suspend foreclosures for the principal residences of borrowers until a home-loan modification program is agreed to as part of the Obama administration's Financial Stability Plan (formerly known as TARP).

The plan, which Treasury Secretary Timothy Geithner revealed on Tuesday, devotes $50 billion to foreclosure prevention efforts. Its aim is to reduce monthly payments for at-risk homeowners.

"OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new Plan takes hold," OTS Director John Reich said in a prepared statement.

And, during a House Financial Services Committee hearing on Wednesday, chairman Barney Frank voiced his hope that the bank CEOs testifying before the committee would put moratoriums in place that would prevent any unnecessary foreclosures to occur before the administration plan is implemented.

"I would ask all of you now to make sure that we have a moratorium in effect," he said. "Having someone suffer foreclosure because two weeks hadn't gone by for this program [to take effect] would be unacceptable."

Many industry observers question, however, how effective moratoriums have been.

"I think that in some instances, the moratorium gets put to productive use," said Mike Larson, a real estate analyst for Weiss Research. "There are some circumstances - inability to reach borrowers, for example - that delaying foreclosures can help and result in cures for borrowers."

But for the most part, moratoriums just postpone the inevitable. California foreclosure filings dropped following a moratorium that took hold this past September. Total filings there fell from 101,724 in August to just 56,954 in October, a 44% decline.

But the California moratorium only required that lenders speak directly with defaulting borrowers before any foreclosure filings could be issued. That had the impact of delaying filings there by about three months, according to Kevin Stein of the California Reinvestment Coalition. After a few months, those delayed filings started to come back into play and foreclosure notices have been increasing ever since. In January they totaled 76,761.

"We haven't seen any of the moratoriums work on a state level," said Rick Sharga, spokesman for RealtyTrac. "What we see in a huge fall off in foreclosure activity for the length of the moratorium followed by a huge spike. Unless there's a really effective program put in place that will actually cure foreclosures, all moratoriums do is delay them. And that can prolong the housing crisis."

"In most cases, it's just kicking the can down the road," added Larson. "It also asks investors in mortgages to take an even bigger hit as delays just add to their losses. That just makes it more hazardous to the financial community."

Moratoriums do little good for homeowners battered by the economic crisis.

"Considering the staggering number of job losses, it is hard to imagine that there could be any sustainable long-term decline in the number of homes going into foreclosure," said Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.

"Even when they were employed, millions of homeowners struggled to make their mortgage payments, and now with household incomes either cut in half or nonexistent, the mortgage problems in this country are likely to escalate."

Nevada once again recorded the highest foreclosure rate in the nation. One of every 76 households had a filing during January. California, with one for every 173, was second; Arizona, one for every 182, was third; and Florida rounded out the top four with one for every 214. Oregon finished a surprising fifth, with one filing for every 357 households.

"It shows the foreclosure problem is starting to creep up the coast," said Sharga.

The 10 worst-hit cities are located in the Sun Belt, with California metro areas leading the way. The Golden State accounted for six of the top 10, with Merced posting the highest rate. It saw a foreclosure filing for one in every 59 housing units - nearly eight times the national average.

Other poorly performing California cities included Riverside-San Bernardino, which was fourth with one in every 81 households; and Modesto, fifth with one in every 84.

Two Florida cities were in the top 10: Cape Coral-Fort Myers was number third, with a rate of one in 80, and Port St. Lucie was ninth, with one for every 123.

Las Vegas posted the second highest rate in January one in 63 and the Reno area was ninth with one in every 128 households.