The monthly foreclosure market report, released by RealtyTrac, revealed a drop in the overall foreclosure activity. As per this leading online marketplace of foreclosure properties, foreclosure filings for July decreased 10% from the prior-year month and 3% from the prior month. This brought the total number of properties receiving default, auction or repossession notices to 191,925.
On the other hand, foreclosure starts – default notices issued and foreclosure auctions (depending on the state’s foreclosure procedure) – surged 6% from July 2011 but decreased 6% from June 2012 to 98,174 properties. This was the third consecutive monthly rise in foreclosure starts. Moreover, foreclosure starts increased in 27 states on an annual basis, including 16 states with judicial foreclosure process and the remaining with non-judicial foreclosure process.
Additionally, bank repossessions (REOs) plummeted 21% from the prior-year month and 1% from the last month to 53,654 properties. This was the 21st straight monthly fall in REOs on a year-over-year basis. Also, REO activity slipped annually in 38 states and the District of Columbia. Some of the biggest REO decreases occurred in non-judicial states including Nevada, Virginia, California, Georgia and Washington.
The recent decline in overall foreclosure activity is primarily attributable to the switching of mortgage servicers to other options – short sale and loan modifications – to prevent foreclosures. Further, 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 gains more transparency for the borrowers. The new proposed regulations necessitate the mortgage servicers to issue monthly statements, warn customers before interest rates adjustments and provide more options to prevent foreclosures.
However, with the $25 billion settlement deal that took place between five mortgage servicers – JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C), Ally Financial Inc. and Wells Fargo & Company (WFC), 49 states’ attorneys general and the regulators earlier this year, foreclosure activity is expected to accelerate as mortgage servicers resume distressed property dealings with renewed vigor.
A jump 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 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 have a chance of regaining a solid foothold if there are sufficient buyers for these properties.
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