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Serious Mortgage Default Rate Falls to a 5-Year Low

Shanthi Bharatwaj

NEW YORK ( TheStreet) -- The housing market continues to heal with the number of completed foreclosures declining 29% year-over-year in November, according to the latest data from CoreLogic.

According to the report, there were 46,000 completed foreclosures during November. That is still more than double the normal rate of foreclosures. In the pre-bubble days between 2000 and 2006, foreclosures averaged 21,000 a month.

However, the pace of foreclosures has been declining rapidly. Foreclosures were down 8% from the previous month. About 812,000 homes were in some stage of foreclosure, down 29% from a year earlier.

Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. Since Sept.2008, 4.7 million homes have been lost to foreclosure.

The declining pace of foreclosures has been one of the major factors behind the housing recovery. In the early years following the bust, home prices failed to recover as the market was flooded with foreclosed homes.

There were fears that more homes would eventually wind up in foreclosure. Fears of a large "shadow inventory" of homes also weighed on home prices.

Those concerns have waned over the last couple of years as fewer people defaulted on their loans and banks began to pursue alternatives other than foreclosures such as loan modifications and short sales.

Shadow inventory -- or the number of properties that could eventually wind up in foreclosure -- stood at 1.7 million homes in October, according to CoreLogic's estimate. That is down 26.4% from a year earier and the lowest level since August 2008.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of properties that are seriously delinquent, in foreclosure or held as REO (real estate owned) by mortgage servicers, but not currently listed on multiple listing services.

Seriously delinquent loans -- those more than 3 months past due -- accounted for less than 5% of all mortgage loans, the lowest level since November 2008.

All these numbers are still elevated relative to historical levels but the trend is heading decidedly lower.

"Nationally, loan performance continues to improve. The rate of seriously delinquent loans is at a new five-year low, down 26 percent relative to a year ago," said Dr. Mark Fleming, chief economist for CoreLogic. "The shadow inventory continues to decline as well, decreasing at an average monthly rate of 46,000 units over the last year. Healthy market levels of shadow inventory are around 650,000 units, so there is more to be done, but the trend is in the right direction."

According to the report, the five states with the highest number of completed foreclosures for the 12 months ending in November 2013 were Florida (115,000), Michigan (54,000), California (42,000), Texas (40,000) and Georgia (36,000). These five states account for almost half of all completed foreclosures nationally.

For more on the current state of the foreclosure crisis, read Foreclosure Crisis Is in Last Inning.

-- Written by Shanthi Bharatwaj in New York

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