Stephanie Armour
USA Today

Foreclosures dropped in January, a possible sign that efforts to slow foreclosures through moratoriums and mortgage modifications are having some effect.

Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 274,399 properties during January, a 10% decrease from December but still up 18% from January 2008, according to RealtyTrac. The report also shows one in every 466 U.S. homes received a foreclosure filing in January.

The last time foreclosures dropped was in November.

“Everybody is slowing the process down with moratoriums and workouts. There’s more caution,” says Joel Naroff, with Naroff Economic Advisors. “But it doesn’t change the reality. There will still be a lot more foreclosures to come.”

On Wednesday, the federal Office of Thrift Supervision urged the more than 800 savings and loan associations it regulates to suspend foreclosures until the home loan modification program outlined in Treasury Secretary Timothy Geithner’s financial recovery plan is finalized. Geithner has said the Obama administration will earmark $50 billion to prevent avoidable foreclosures by reducing monthly payments for homeowners.

Fannie Mae and Freddie Mac extended their moratoriums on foreclosures through the end of January, and some states have taken similar steps. In December, Florida put in place a voluntary 45-day freeze on all new foreclosure actions and scheduling of foreclosure sales. The result: Overall foreclosure activity in Florida was down 20% in January from the previous month, according to RealtyTrac.

But the moratoriums raise concerns that foreclosures are only being delayed, not prevented.

“We are coming off an abnormally high month in December, so from a peak like that, having some drop is normal. Plus Fannie and Freddie extended their moratorium,” says Rick Sharga, with RealtyTrac. “A 90-day moratorium looks good on paper, but if you don’t manage it better, it doesn’t cure the problem.”

States with the top foreclosure rates were Nevada, California and Arizona. Nevada foreclosure activity in January decreased 4% from December, but the state still had the nation’s No. 1 foreclosure rate. One in every 76 homes was in some stage of foreclosure during the month.

Still, few economists say the runaway pace of foreclosures is a thing of the past. Another 3 million foreclosures are expected in 2009, according to RealtyTrac. An analysis by Moody’s Economy.com forecast 3.1 million defaults in 2009 and 13.5 million defaults from 2006 to 2011.

In addition to the recent drop in foreclosures, there have been other promising signs in the bruising housing market.

Existing home sales showed an unexpected uptick in December. Sales rose 6.5% in December to an annual rate of 4.74 million properties from 4.45 million in November, a report Monday by the National Association of Realtors said. Economists had been predicting a drop of around 4%.

“We are beginning to see some bargain hunters coming into the market looking,” says Lawrence Yun, chief economist at the National Association of Realtors.

“A 10% decline (in foreclosures) is positive, but it’s after very high levels. We still have a crisis. (The moratoriums) could just be postponing.”

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