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Signaling a steady recovery in the housing market, the foreclosure market report released by RealtyTrac revealed a slump in the overall foreclosure activity in 2012. As per this leading online marketplace of foreclosure properties, foreclosure filings slipped 3% from 2011 and plunged 36% from 2010. This brought the aggregate number of properties receiving default, auction or repossession notices to 1,836,634.

Though overall foreclosure activity dipped in 2012, it hiked in 25 states on a year-over-year basis. Out of these, 20 states use the judicial foreclosure process. Yet, foreclosure activity fell in 25 states (19 of these states use the non-judicial foreclosure process) from the 2011 levels. The top 10 states with the highest foreclosure rates were Florida, Nevada, Arizona, Georgia, Illinois, California, Ohio, Michigan, South Carolina and Colorado.

Further, by the end of 2012, above 1.5 million homes were at some stage of foreclosure process or bank-owned, rising 9% from the end of 2011, but down 31% from the end of 2010. Nevertheless, the rise in property prices enabled many homeowners to come out of negative equity. In Jan 2013, nearly 10.9 million homeowners across the country were underwater, down from 12.5 million in Jan 2012.

Decline in overall foreclosure activity was largely due to the switching of mortgage servicers and the government to other options – short sale, refinancing of loans and loan modifications – to prevent foreclosures. However, the dip in foreclosures is expected to be at an uneven pace, as processes that are being used in handling these vary from state to state.

Foreclosure activity is expected to rise in judicial states early this year as these states have substantial backlogs to clear. Further, there would be another wave of rise at the end of year in non-judicial states as major lenders – 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) – adjust to the new rules set under the National Mortgage Settlement as well as several other laws.

Yet, we believe that the gradually stabilizing housing sector and falling unemployment rate are likely to aid homeowners to avoid foreclosures in the near term. Also, the rate at which properties are entering the foreclosure procedure is expected to trend down gradually, thereby lifting the housing prices going forward. Moreover, the housing market will get an opportunity to regain a solid foothold if there are sufficient buyers for these properties.

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