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Delinquent borrowers take heed: The number of homes entering foreclosure has picked up after last year's slowdown, when banks were forced to overhaul their foreclosure practices.
Foreclosure-data firm RealtyTrac said 311,010 properties started the foreclosure process in the second quarter, a 9% increase from the previous quarter and a 6% increase from the second quarter of 2011 — the first year-over-year jump since the fourth quarter of 2009. Moreover, the trend was fairly widespread, with 31 states posting year-to-year increases. (Bing: How many foreclosures are there in your area?)
Since the $25 billion mortgage settlement earlier this year, "Lenders and servicers are slowly but surely catching up with the backlog of delinquent loans that under normal circumstances would have started the foreclosure last year," RealtyTrac CEO Brandon Moore said in a statement.
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This uptick in foreclosure processing will mean more short sales and bank repossessions later this year and early next year, which will dampen home prices slightly, said Mark Zandi, chief economist for Moody's Analytics.
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The numbers
Overall foreclosure activity dropped 8.21% from the same quarter in 2011, with more bank repossessions replaced by short sales, or sales in which the banks agree to take less than the debt owed.
For the first half of the year, 1.05 million U.S. properties posted some kind of foreclosure filing – from notice of default to bank repossession — a 2% increase from the previous six months but down 11% from the first half of 2011.
Foreclosure activity, however, did increase from the six-month period a year ago in 20 states, including:
- Indiana: 32% increase
- Pennsylvania: 24% increase
- South Carolina: 23% increase
- Connecticut: 23% increase
- Florida: 23% increase
- Illinois: 22% increase
"Things got bogged down last year, as lenders were caught red-handed with improper processing procedures," said Daren Blomquist, RealtyTrac vice president, who oversees the quarterly report.
Now, with the landmark $25 billion mortgage settlement among the country's largest lenders, state attorneys general and federal government behind them, lenders are moving on the estimated $1.5 billion in loans that are 90 days or more past due.
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State by state
In the first half of this year, Nevada posted the highest foreclosure rate of any state, with 20,618 houses or one in 57 homes reporting a filing. This came despite a 61% decrease from the same period a year earlier. Foreclosure starts also surged 61% from the first quarter to the second quarter, after lenders adjusted to a state law that took effect in October that requires homeowners to have access to any documents used in the foreclosure process.
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Arizona had the second-highest foreclosure rate. Its 49,157 properties with at least one foreclosure filing in the six-month period represented one in every 58 homes. That was a decrease of 37% from the same period in 2011 and a 6% drop from the previous six months. Still, foreclosure starts were on the rise in the second quarter, increasing 11% from the first quarter.
Georgia had the third-highest foreclosure rate in the first half, boosted by a 23% increase in foreclosure starts from the same period in 2011 and a 5% uptick between the first and second quarters of this year. In the first six months of this year, 65,342 Georgia properties had at least one foreclosure filing, a rate of one in every 60 homes.
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California posted the fourth-highest foreclosure rate in the first half with 213,988 properties or one in every 64 reporting a filing. An 18% year-over-year uptick in foreclosure starts in the Golden State in June, however, boosted its foreclosure rate for the month to the highest level nationwide — one in every 288 homes. This is the first time this has happened since RealtyTrac began issuing its report in January 2005.
Regulators and lawmakers across the country will watch California's foreclosure situation. A new bill that Gov. Jerry Brown signed into law Wednesday, which takes effect in January, has written much of the mortgage settlement with the five major lenders into law and expands it to encompass all lenders.
It is the first state legislation to force banks to end the practice of "dual tracking," or proceeding with the foreclosure process while homeowners are negotiating a modification with their lender. It also requires a single point of contact for homeowners regarding their delinquent home loan. If the lender violates the law, a homeowner can sue.
It could be used as a model for foreclosure reform in other states and is likely to increase the number of short sales and modifications, Blomquist said.
"In an effort to avoid the possibility of such a lawsuit, the lender will be less inclined to repossess the property," he said.
