Foreclosure projections loom over housing and credit markets

The housing market continues to reflect a tepid recovery, as demand fluctuates amid high foreclosures rates and limited credit availability. In fact, most economists expect the housing market to remain the most troubled sector, with some estimates projecting a stagnant industry through much of the decade. Now, it appears as though another wave of foreclosures can be expected in coming months. A report released this week by RealtyTrac found a flood of some 1.6 million foreclosures backlogged in the 18 month period since the recession ended will soon make their way to local markets. The trend is expected to unfold despite foreclosure activity reaching the lowest in level in five years within the past three months. The foreclosures are expected to hit because of a multi-state attorneys general settlement reached in March. As a result, lenders are likely to move ahead with foreclosure proceedings on homes that have been in default for months. "The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated," said Brandon Moore, chief executive officer of RealtyTrac. "There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months. "The dam may not burst in the next 30 to 45 days," Moore added, "but it will eventually burst, and everyone downstream should be prepared for that to happen - both in terms of new foreclosure activity and new short sale activity." Accordingly, mortgage lenders and alternative credit providers need to ramp up their risk management practices to protect their assets from the threat of default. This is especially important in a high-risk environment such as the current economic recovery. The RealtyTrac report also found first-time foreclosure starts grew 7 percent from February to March, marking the third straight monthly increase. Some analysts expected the market to be buoyed by the construction sector, which has also been struggling but is beginning to nore a surge in  demand for new home construction. In fact, home builder confidence recently reached the highest level in four years, according to the National Association of Home Builders.