Banks have stepped up their actions against homeowners who have fallen behind on their mortgage payments, setting the stage for a fresh wave of foreclosures.
The number of U.S. homes that received an initial default notice — the first step in the foreclosure process — jumped 33% in August from July, foreclosure listing firm RealtyTrac said Thursday.
The rise represents a nine-month high and the biggest monthly gain in four years. The spike signals banks are starting to take swifter action against homeowners, nearly a year after processing issues led to a sharp slowdown in foreclosures.
“This is really the first time we’ve seen a significant increase in the number of new foreclosure actions,” said Rick Sharga, a senior vice president at RealtyTrac. “It’s still possible this is a blip, but I think it’s much more likely we’re seeing the beginning of a trend.” Foreclosure activity began to slow last fall after problems surfaced with how many lenders were handling foreclosure paperwork, namely several shortcuts known as robo-signing.
Many of the nation’s largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.
Other factors have also worked to stall the pace of new foreclosures this year. The process has been held up by court delays in states where judges play a role in the foreclosure process, a possible settlement of government probes into the industry’s mortgage-lending practices, and lender reluctance to take back properties amid slowing home sales.
A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn’t likely as long as a glut of potential foreclosures hovers over the market.
Foreclosures weigh down home values and create uncertainty among would-be buyers who fret that prices may fall as more foreclosures hit the market. There are about 3.7 million more homes in some stage of foreclosure now than in a normal housing market, according to Citi analyst Josh Levin.
“This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery,” Levin said in a client note this week.
Banks have been working through a backlog of properties that first entered the foreclosure process months, if not years ago. But the August increase in homes entering that process sets the stage for a host of new properties being targeted for foreclosure.
That’s bad news for homeowners accustomed to missing payments for months without the threat of foreclosure. In states such as New York and Florida, for instance, processing delays have helped some stay in their homes more than two years before banks got around to taking back their properties.
In all, 78,880 properties received a default notice in August. Despite the sharp rise from July, last month was still down 18% versus August last year and 44% below the peak set in April 2009, RealtyTrac said.
Some states, however, saw a much larger increase.
California saw a 55% jump in homes receiving a default notice last month. In Indiana they climbed 46%. In New Jersey, where last month a judged ruled that four major banks could resume uncontested foreclosure actions under court monitoring, homes getting a default notice rose 42%.
Despite the increase in new defaults, the number of homes scheduled for auction and those repossessed by banks slowed in August.
Lenders repossessed 64,813 properties last month, a drop of 4% from July and down 32% from a year earlier. Home repossessions peaked September last year at 102,134.
Banks are now on track to repossess some 800,000 homes this year, down from more than 1 million last year, Sharga said.
In all, 228,098 U.S. homes got a foreclosure-related notice last month, up 7% from July but down nearly 33% from a year ago. That’s one in every 570 U.S. households.
Nevada leads, with one in every 118 households receiving a foreclosure-related notice last month. Rounding out the top 10 states with the highest foreclosure rate in August are California, Arizona, Georgia, Idaho, Michigan, Florida, Illinois, Colorado and Utah.