Foreclosures Up For Second Month

The annual rate of foreclosure starts increased for the second straight month in June, spiking as much as 18 percent year-over-year in California. Banks and lenders have a 15-month supply of distressed homes on their books, according to listing firm RealtyTrac Inc., slowing the pace of moving said houses to an average of over a year.

Banks and lenders are beginning to move forward on their backlog of foreclosed homes, according to a new report, as the housing market shows increasing signs of improvement and the mortgage industry moves past last year's controversy.

Listing firm RealtyTrac Inc. reported July 12 that foreclosure starts have increased on an annual basis for the second month in a row for the first time in years. Another report shows lenders initiating foreclosures on 12 percent of loans behind payment in June, the highest level since the first half of 2009.

Two factors are likely responsible for the increase. First, the mortgage-lending industry is moving past last year?EUR??,,????'???s allegations of processing foreclosures without verifying documents, a story that made headlines and forced lenders to re-evaluate standards and processes for the foreclosure process, ending with a $25 billion settlement to the government in February.

Second, the housing market has shown a consistent, if sluggish, improvement in the first half of 2012, becoming one of the few positive economic stories of the year and demonstrating potential for lenders to finally take advantage of their overstock of distressed homes.

Starting the foreclosure process does not mean these houses will be available tomorrow, however. It took an average of 378 days for U.S. homes to complete the foreclosure process in the second quarter, up from 370 days in the first quarter and matching the average from the first quarter of 2007. New York, no stranger to a volatile housing market, currently averages 1,001 days – almost three years – to complete the process.

In this case, though, that length of time could be better for lenders, giving the housing market more time to find its footing before the next wave of distressed homes hits the market. Home sales are expected be a net positive for the economy this year for the first time since before the recession began, and the short sales and discounts that accompany foreclosures could diminish those positive returns.

According to the Mortgage Bankers Association, roughly 3 million U.S. homes are behind on their mortgages, and loans on nearly 13 million homes now cost more than the house is worth. If the mortgage industry is starting to take action on such a wide swath of delinquency, the future of the housing market – and potentially, the rest of the economy – is far from certain.