Real estate experts have long predicted a second tsunami of foreclosures that would annihilate an already flailing housing market. The wave would hit as lenders reduce the enormous backlog of court cases stalled by sloppy documentation.
But the Tampa Bay area so far shows no sign of a second wave. Mortgages with serious delinquencies are declining, and initial foreclosure filings dropped 21 percent last month — the sixth decrease in seven months.
"We keep hearing about it, but we certainly haven't seen it," said Judge J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit.
The talk of a second wave in Florida increased last fall when three mega-law firms collapsed amid allegations of sloppy and fraudulent documentation, forcing banks to hire new lawyers and stalling thousands of cases.
The lawyers have been replaced, and banks are going forward with the foreclosures, McGrady said, but they're canceling the sales contracts on the homes. He speculates that lenders are moving slower over fear of negative publicity surrounding foreclosures, or they are pacing themselves because they don't want to own too many homes all at once.
One law firm told him that filings could increase in July. He also said federal mortgage backers Freddie Mac and Fannie Mae are offering borrowers pre-foreclosure mediation to keep people in homes.
But Matthew Weidner, a St. Petersburg lawyer who focuses on foreclosures, believes a second wave might be coming because of an increase in the area's so-called shadow inventory.
These are homes where mortgages are 90 days late and nearing foreclosure or that have already been seized by a lender but not listed for sale. The shadow inventory could further decimate the market by driving down prices if banks decided to sell all at once.
As of Thursday, about 36,500 homes were listed for sale in seven counties around Tampa Bay. Conventional sales represented 73 percent; short sales 22 percent; and bank-owned 5 percent, according to Peter Murphy, president of the Tampa real estate firm Home Encounter.
He estimates that the shadow inventory in Tampa Bay is between 9,787 and 13,284 homes. The 13,284 homes would take two months to sell at May 2011 levels if they were the only houses on the market. But that isn't the case.
Weidner said banks aren't flooding the market with homes for one reason.
"There's not enough purchasers for the inventory," he said. "How many real families out there can buy a home?"
Is the area's shadow inventory so large that it will impact the market's long-term recovery?
"We can't find strong evidence of it," Murphy said. "But that doesn't mean it's not out there. And that doesn't mean that it won't grow should home prices not recover or the economy continues to deteriorate."
Although median home prices are down year-over-year in the bay area, the figure rose 15 percent from $100,000 in January to $115,000 in May. The monthly trend might be causing fewer defaults among underwater mortgage holders looking for reassurance.
"It's possible that homeowners are more in tune with what their neighbor's home sold for last month than we give them credit for," Murphy said.
Delinquent loans are dropping across the country, the Mortgage Bankers Association reported in May. Loans delinquent 90 days or more have fallen for five straight quarters and are at the lowest level since early 2009.
Statewide, the group said, foreclosure figures are inflated because it takes 638 days for foreclosures to move through the courts.
Florida has the third highest amount of underwater mortgages in the country. Of the 4.3 million mortgages in Florida, more than 2 million homeowners owe more than their homes are worth, according to mortgage research firm CoreLogic.
University of Central Florida economist Sean Snaith doesn't know if the shadow industry is as large as experts predict.
He said early foreclosure cases involved borrowers who shouldn't have qualified for mortgages in the first place; the new cases are borrowers who defaulted after losing jobs. Snaith doesn't expect any new filings to reach the record number of cases in recent years.
"The pace had to diminish," Snaith said. "It could not go on forever. This may be a good sign."
Scott Brown, chief economist with Raymond James in St. Petersburg, said banks are the driving factor when it comes to whether there will be a second wave.
Foreclosures are time-consuming and it will take time for banks to work through all the properties in foreclosure. They also need to maximize profits and don't want to lose money by flooding the market with cheap homes, he said, adding: "There is some fear that the banks are holding on to a lot of property."
Craig Beggins, owner of Century 21 Beggins Enterprises in Apollo Beach, said he believes the shadow inventory is large, but he doesn't expect it to doom the market. His agents are busy, he said, closing 118 deals last month.
He pointed to the 21,957 homes listed for sale in Hillsborough County in June 2007. The number dropped to 11,905 last month.
"I don't see it getting that bad again."
Mark Puente can be reached at [email protected] or (727) 893-8459. Follow him at Twitter at twitter.com/markapuente.