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Mass. housing recovery years off

Many still face foreclosure risk

By Jenifer B. McKim
Globe Staff / June 11, 2011

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Despite a steep drop in home foreclosures this year, Massachusetts has years to go before it will experience a substantial real estate recovery, a study released yesterday said.

The report by the nonprofit Massachusetts Housing Partnership found that thousands of homeowners are still straining to pay their mortgages as the state’s economy slowly improves. Massachusetts probably won’t see housing values fully recover until 2014, said Tim H. Davis, author of the report.

The report also found that the year’s dramatic slowdown in the number of foreclosures is not a sign of improvement, but rather the result of US lenders’ concerns over national scrutiny of alleged sloppy and fraudulent foreclosure practices.

The drop-off in foreclosures began last summer when the state Legislature passed a law requiring lenders to wait 150 days, in most cases, before starting the foreclosure process. The decline continued into the fall after some bank employees, now known as “robosigners,’’ admitted to signing thousands of legal foreclosure documents without reviewing them. Federal regulators and state attorneys general are in the midst of investigating foreclosure problems and negoti ating settlements with major financial institutions.

“This is more of a pause in the whole process,’’ said Davis. “Lenders really were worried that their processes weren’t correct.’’

In Massachusetts, 2,111 homeowners lost their properties during the first four months of the year, 56.2 percent fewer than during the same period of 2010, according to Warren Group, a Boston company that tracks local real estate. Foreclosure petitions, the first step in a seizure process, fell nearly 58.6 percent in the first four months of the year, compared with the same period last year.

But many Massachusetts borrowers remain delinquent on their mortgages or are at high risk of foreclosure, the report said. This includes 21,000 homeowners who already are in the foreclosure process and up to 56,000 who are 90 days or more behind on payments. Adding to the challenges, about 320,000 Massachusetts borrowers — about 15 percent of state mortgage holders — have negative equity in their homes, meaning their properties are worth less than what they owe lenders, according to a new study by CoreLogic, a California company that analyzes and provides data.

Meanwhile, state unemployment remains relatively high — 7.8 percent in April — despite recent improvements.

Clark Ziegler, executive director of the housing partnership, said he expects foreclosure deeds to increase in volume soon and then begin to slow as more homeowners catch up on their mortgages. The number of homeowners who are seriously delinquent on their mortgages also has started to ebb, he said.

“The long-term signs are positive, but at the same time there are a large number of units still in the [foreclosure] pipeline while unemployment is still high,’’ he said. “This is a long-term slog.’’

Kathleen Engel, a Suffolk University Law School professor, said lenders are holding off on foreclosures as various legal challenges make their way through state and federal courts. Lenders now are more likely to complete foreclosures in process than start new ones, she said. “They are clearing up the backlog,’’ said Engel, author of the recently released book “The Subprime Virus.’’

As state and local officials grapple with how to resolve the local foreclosure crisis, housing problems continue to spread into rural and suburban areas, the Massachusetts Housing Partnership report said. The foreclosure crisis started in urban areas several years ago and has spread outward as more homeowners were hit with unemployment and cuts in pay. For the third straight quarter, more than half of the state’s distressed units — those in the foreclosure process or already bank-owned — are in suburban and rural areas, the report said. For example, the towns of Winchendon, Randolph, and North Brookfield are among the top five communities in the state with the highest concentration of distressed properties, according to the housing partnership.

Steve Bennett, a Jamaica Plain foreclosure prevention counselor, said he has noted a drop in the number of calls from financially stressed homeowners. He believes it’s partly due to a long-awaited effort by banks to help more homeowners with loan modifications. But Bennett said he knows the economy has not improved enough to make the issue go away.

Lewis Finfer, executive director of the Boston housing advocacy group Massachusetts Communities Action Network, said homeowners appreciate the extra time to get their finances in order while lenders work out their procedures. But he said they worry that they’ll never get enough help to ultimately save their homes. “People feel the sword is hanging over their necks,’’ he said.

Jenifer B. McKim can be reached at jmckim@globe.com.