Foreclosure Activity Jumps, Reverses 4 Month Declining Trend

After having declined for 4 months in a row, July foreclosure activity once again took a leg up, increasing by 4% from the prior month to 325,229 in July according to RealtyTrac. There was deterioration across all three foreclosures categories: default notices, foreclosures auctions and bank repossessions (REO). “July marked the 17th consecutive month with a foreclosure activity total exceeding 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July, have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month.” Of note is the ongoing increase in bank repossessions as banks seems increasingly less motivated to put foreclosed properties in auctions lists. Per RealtyTrac: "Lenders foreclosed on 92,858 U.S. properties in July, a 9 percent increase from the previous month and a 6 percent increase from July 2009. July’s bank repossession (REO) total was the second highest monthly total since RealtyTrac began tracking REO activity in April 2005 and was 1 percent below the monthly REO activity peak of 93,777 in May 2010."

Geogrpahic Breakdown

Five states account for more than 50 percent of national total

California alone accounted for 21 percent of the national total in July, with 66,910 properties receiving a foreclosure filing during the month — down 3 percent from the previous month and down 38 percent from July 2009.

With 51,557 properties receiving a foreclosure filing during the month, Florida accounted for 16 percent of the national total in July despite a nearly 9 percent decrease in foreclosure activity from July 2009.

Illinois foreclosure activity increased 33 percent from the previous month — the biggest monthly increase among states with top 10 foreclosure rates. A total of 19,602 Illinois properties received a foreclosure filing in July, the third highest state total and accounting for 6 percent of the national total.

Michigan accounted for just under 6 percent of the national total, with 18,833 properties receiving a foreclosure filing in July, and Arizona accounted for 5 percent of the national total, with 16,298 properties receiving a foreclosure filing in July.

Other states with foreclosure activity totals among the nation’s 10 highest in July were Nevada (13,727), Ohio (13,511), Georgia (12,577), Texas (11,727) and Maryland (6,961).

Elsewhere, in the UK, the Council of Mortgage Lenders warned that even as the number of homeowners falling behind in their mortgage payments eased in the second quarter of the year, the trade body representing the nation’s lenders warned of “strong headwinds” ahead for the housing market as it downgraded its lending forecast for 2010 according to the FT.

It warned, as it has in recent months, that the need to repay government guarantee schemes were likely to constrain lenders’ ability to supply as much credit as the market wants.

“If borrower demand persists in the business sector, it may be that funding is prioritised in this direction rather than personal mortgages, which could impact activity levels,” the CML said.

[The CML ] pointed out that looking at the overall average level of repossessions obscures some important trends. For example, in the lowest arrears category – those who have unpaid balances equal to 1.5 to 2.5 per cent of the sum borrowed – there has been a marked improvement from the second quarter of 2009 and these are now only 0.7 per cent of all borrowers, down from 1.0 per cent.

But in the highest category of arrears – those who owe 10 per cent or more of the sums they have borrowed – the proportion of those falling behind remains static at 0.23 per cent. It is this group of borrowers that are considered most likely to slip into repossession. The CML said its data suggest that there remains a significant segment of borrowers whose arrears may have been stabilised through lender forbearance or other forms of intervention but who have still not been able to claw their way out of their problems.

Meanwhile, the number of properties repossessed in the period also slipped to 9,400 from 9,800 in the first quarter – a decline of 11.3 per cent – down from a recession peak of 13,200 in the first quarter of 2009. However, the percentage of repossessions which are “voluntary” – where homeowners acknowledged they could not keep up payments and returned the house keys to the bank – rose to 2,700 – or 28.7 per cent of all repossessions.

It appears banks everywhere are still ahead of the extend and pretend game, although the underlying dynamics continue to shift to where continued "pretense" will soon be problematic.