Foreclosures plunge 27% - biggest drop on record

NEW YORK (CNNMoney) -- Is our long national foreclosure nightmare ending?

The number of foreclosure notices filed in February dropped 14% compared with a month earlier and 27% compared with a year earlier, according to RealtyTrac.

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Foreclosure Fiasco

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That was the biggest year-over-year decline the company has ever recorded. But the improvement may be exaggerated, according to RealtyTrac CEO James Saccacio, who traced some of the decline to the fallout over robo-signing issues.

"Allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets," he said. "The industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures."

Another contributing factor was the harsh winter weather that covered much of the country during the month. That delayed some of the paperwork processing and the serving of notices of default, notices of auction sales and other filings.

There were still more than 225,000 filings during the month, or one for every 577 homes. The banks repossessed 64,643 homes from delinquent borrowers, down significantly from the peak of about 102,000 last September.

The foreclosure fall flew in the face of other housing market reports that made it clear that housing is far from being out of the woods. S&P/Case-Shiller reported that prices are going down, and Zillow, the real estate website, said nearly 30% of borrowers with mortgages owe more than their homes are worth.

Looking to the future, the 50 state attorney generals seem to be making progress in their pursuit of a financial settlement with the banks over the robo-signing mess.

"We believe some of the servicers have slowed foreclosures as they wait to see how the settlement talks play out," said RealtyTrac spokesman Rick Sharga, who expects a huge spike in filings over the next few months.

One segment of the industry that could benefit from the foreclosure drop, -- no matter how artificial -- is new home builders. "It's definitely good for them," said Pat Newport, a housing market analyst with IHS Global Insight. "It makes it easier for them to compete in the market."

The builders have run up against bargain-basement pricing as the banks sell off their steady flood of repossessed homes. If that flood ebbs, it should firm up pricing and make it easier for developers to sell their new homes and make a profit.

Home building contributes much to the overall economy. A pick-up from the current low rate of sales, which is down about 75% from the peak, would result in many new jobs.

"Existing home sales produce some economic activity but it pales in comparison with new home sales," said David Crowe, the chief economist for the national Association of Home Builders. "We calculate that for every 100,000 homes built, it creates 150,000 construction jobs but another 150,000 manufacturing jobs building refrigerators, furniture and other products."

Three of the four "Sand States," Nevada (one filing for every 119 housing units), Arizona (one in 222) and California (one in 239) held their places at the top of the list of hardest hit states. Utah is the new number four, followed by Idaho, Georgia and Michigan.

Florida (one in 472), however, has slipped down the list to number eight. Filings dropped more than 65% year-over-year.

Part of the reason for Florida's improvement may have been the fall-out from the robo-signing issue. Foreclosures involve court hearings in the Sunshine State and many cases have been delayed by judges.

"Judicial foreclosure states recorded the most severe drops in foreclosures," said Sharga.