After months of ominous warnings that a second title wave of foreclosures was coming, the impending tsunami seems to have been downgraded to something more akin to a tropical storm, thanks in part to an increase in the use of short sales by some of the largest mortgage servicers.

Foreclosure filings hit the lowest level seen in nearly five years in April, down 5% from the previous month and down 14% year-over-year, according to data released today by RealtyTrac.

While there is still plenty of pain to be felt in many regional markets with backlogs to work through, "More and more, it’s looking like short sales are going to take the air out of that expected bubble in foreclosures we were thinking would happen this year," said Daren Blomquist, vice president at RealtyTrac, on a call with Builder this week. "At the end of the day, foreclosure activity will be up slightly this year compared to 2011. We’ll still see increases in filings in local markets … but short sales are helping to siphon off a lot of the potential foreclosures that are out there."

That’s promising news for home prices, which have been pummeled by the onslaught of distressed sales in recent years. As of January, the latest month for which RealtyTrac has pricing data available, the average price of a short sale was 21% lower than that of a non-distressed sale; meanwhile REOs averaged a 34% price drop compared to non-distressed prices.

The shift may be due in large measure to the deal struck between the states’ attorneys general and mortgage servicers. Among the five largest lenders involved in that settlement—Ally, Bank of America, Chase, Citi, and Wells Fargo—the ratio of REOs to short sales is less than 1.5 to 1. Other lenders are averaging more than 2.5 REOs for every short sale performed. "That to me is an indication that the lenders in the settlement are more motivated" to avoid the foreclosure process, Blomquist said. "Those lenders account for a huge percentage of the loans being serviced. That alone is going to impact the industry, because the way they do things will be repeated by others."

See RealtyTrac’s full April report, including data for individual state and metro areas.

Claire Easley is a senior editor at Builder.

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