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Foreclosures Continue to Wane

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Signaling the gradual recovery in the housing market, the foreclosure market report released by RealtyTrac revealed a drop in the overall foreclosure activity in October 2012 on an annual basis. As per this leading online marketplace of foreclosure properties, foreclosure filings plummeted 19% from the last-year month but rose 3% from the prior month. This brought the aggregate number of properties receiving default, auction or repossession notices to 186,455.

Further, foreclosure starts – default notices issued and foreclosure auctions (depending on the state’s foreclosure procedure) – declined 19% from October 2011 but inched up 2% from September 2012 to 89,209 properties in the reported month. This was the 3rd straight monthly decline in foreclosure starts on a year-over-year basis. Yet, bank repossessions (REOs) plummeted 21% from the prior-year month and almost 1% from the last month to 53,478 properties, marking the 24th straight monthly fall in REOs on an annual basis.

Moreover, in the reported month, the top 10 states with the highest foreclosure rates were Florida, Nevada, Illinois, California, Arizona, Georgia, Ohio, Colorado, South Carolina and Michigan. Further, the states with largest annual rise in overall foreclosure activity included New Jersey, New York, Connecticut, Maryland, Ohio and Illinois.

The recent decline in foreclosure activity is largely driven by the switching of mortgage servicers and the government to other options – short sale, refinancing of loans and loan modifications – to prevent foreclosures. Moreover, gradually stabilizing housing sector and falling unemployment rate are likely to aid homeowners to shun foreclosures in the near term.

However, we believe foreclosure activity will accelerate in judicial states following a $25 billion deal signed between five mortgage servicers – JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) , Citigroup Inc. (C - Free Report) , Ally Financial Inc. and Wells Fargo & Company (WFC - Free Report) – 49 states’ attorneys general and the regulators earlier this year. This could, in turn, lead to a rise in the overall foreclosure activity going forward.

Further, in two separate announcements, JPMorgan and BofA have come up with details related to fulfillment of their respective obligations related to the above-mentioned deal. As of September 30, 2012, BofA has extended $15.8 billion in mortgage relief to 164,000 homeowners. In the same time-frame, JPMorgan extended $7 billion in relief to 75,000 homeowners.

Now reverting to the main story, RealtyTrac anticipates the lenders to remain on track to complete foreclosures on 650,000 properties by the end of this year. This is lower than 800,000 foreclosures completed in 2011.

The rate at which properties are entering the foreclosure procedure is expected to trend down gradually, thereby lifting the housing prices going forward. Nevertheless, the decrease in foreclosures is expected to be at an uneven pace, as processes that are being used in handling them vary from state to state. Moreover, the housing market will get a chance to regain a solid foothold if there are sufficient buyers for these properties.

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