Foreclosure activity fell to a 40-month low in April, according to data released today from RealtyTrac. Foreclosure filings were down 9% from March and 34% lower year-over-year.

Unfortunately, the decrease is still being driven by processing delays rather than a recovery.

“The first delay occurs between delinquency and foreclosure, when lenders and services are no longer automatically pushing loans that are more than 90 days delinquent into foreclosure but are waiting longer to allow for loan modifications, short sales, and possibly other disposition alternatives,” explained James Saccacio, CEO at RealtyTrac, in a press release today. “Data from the Mortgage Bankers Association shows that about 3.7 million properties are in this seriously delinquent stage. The second delay occurs after foreclosure has started, when lenders are taking much longer than they were just a few years ago to complete the foreclosure process.”

During the first quarter of 2011, it took an average of 400 days for a home to go from initial default notice to REO—more than twice the 151 days foreclosures were averaging in the first quarter of 2007, RealtyTrac reports.

Ten states accounted for 70% of the foreclosure activity, with California in the lead at 55,869 filings last month. Florida (19,649) came in at No. 2, followed by Arizona (13,419), Michigan (12,996), Nevada (11,761), Illinois (10,055), Texas (8,793), Georgia (8,479), Ohio (7,962), and Colorado (4,379).

However, the stock of foreclosures have been falling, according to Andres Carbacho-Burgos, an economist at Moody’s Analytics, “due to REOs being sold off to other parties, usually at a significant discount.”

“Total [foreclosure] inventory peaked at 2.2 million at the end of last year,” Carbacho-Burgos told Builder. “Since then it has fallen to around 1.9 million.”

However, there are still those 3.7 million seriously delinquent homes to worry about. At the NAHB’s 2011 Construction Forecast, held last month, Mark Zandi, chief economist at Moody’s, emphasized that “after this last bulge in delinquency, things look really good.”

Carbacho-Burgos predicts that moving past that bulge will take the next year and a half. “We’re predicting [foreclosures] will fall to the pre-housing crisis level of 800,000 by the end of 2012.”

Claire Easley is senior editor, online, at Builder.

Learn more about markets featured in this article: Greenville, SC.