Foreclosure Slightly Up in August

The monthly foreclosure market report released by RealtyTrac revealed a marginal rise in the overall foreclosure activity from the prior month. As per this leading online marketplace of foreclosure properties, foreclosure filings for August escalated 1% from the last month but declined 15% from the prior-year month. This brought the total number of properties receiving default, auction or repossession notices to 193,508.

On the other hand, foreclosure starts – default notices issued and foreclosure auctions (depending on the state’s foreclosure procedure) – surged 1% from July 2012 but decreased 13% from August 2011 to 99,405 properties. This was the first monthly dip in foreclosure starts after recording a rise for the last three months. Moreover, foreclosure starts increased in 18 states on an annual basis.

Additionally, bank repossessions (REOs) fell 2% from the prior month and 19% from the last month to 52,380 properties. This was the 22nd straight monthly fall in REOs on a year-over-year basis. Also, REO activity slipped annually in 35 states and the District of Columbia. However in the upcoming few months, REOs are expected to rise as there has been huge elevation in foreclosure starts over the last year.

Further, the top 10 states with the highest foreclosure rates were Illinois, Florida, California, Arizona, Nevada, Georgia, Ohio, Michigan, Delaware and Colorado. Moreover, the foreclosure activity waned in 24 non-judicial states and District of Columbia, while 15 non-judicial states and Washington DC reported a monthly augmentation.

Overall, foreclosure activity has been accelerating in judicial states after the $25 billion deal was signed between five mortgage servicers – JPMorgan Chase & Co. ( JPM - Analyst Report ) , Bank of America Corporation ( BAC - Analyst Report ) , Citigroup Inc. ( C - Analyst Report ) , Ally Financial Inc. and Wells Fargo & Company ( WFC - Analyst Report ) – 49 states’ attorneys general and the regulators earlier this year. In a report released by the official monitoring the implementation of the deal, it was stated that the five banks have provided nearly $10.6 billion in relief during the period ranging from March 1 to June 30.

Nevertheless, foreclosure activity has been falling in most non-judicial states as they did not create a significant backlog of pending foreclosure cases over the last two years, when foreclosures were halted in almost all the judicial states. Furthermore, a number of steps – short sale and loan modifications – are being undertaken to prevent foreclosures. Also, the Consumer Financial Protection Bureau (CFPB) has come up with a new set of proposals to ensure that the procedures (related to payment collections and foreclosures) followed by the mortgage servicers lead to more transparency for the borrowers.

A spurt in foreclosure starts indicates that there would be potential rise in short sale, where the homeowner sells the property at a lower amount than owned on his/her loan. Also, others could be repossessed by the banks and placed on the market at a significant discount. Thus, many properties are likely to end up adding to the foreclosure inventory, which is expected to jeopardize the recovery of the overall housing property market in the near future.

Though the leap in foreclosures may dampen the housing prices in the near-term, this will enable the housing market to revive in the longer term. Moreover, the housing market will get a chance to regain a solid foothold if there are sufficient buyers for these properties.