The number of U.S. homeowners who were put on notice for being behind on their mortgage payments fell in May to the lowest level since 2006, the result of a slowing housing market and lingering delays in banks' foreclosure process.
Mortgage lenders, many of which are still working through foreclosure documentation problems that surfaced last fall, also took back fewer properties in May, the second monthly decline in a row, foreclosure listing firm RealtyTrac Inc. said Thursday.
The delays continue to push the 2 million U.S. homes already on banks' books or in some stage of foreclosure further into limbo and put banks on track to repossess about 200,000 fewer homes this year than in 2010, the firm said.
"The problem with that, even though it sounds better, is that all of those foreclosure auctions we should have seen this year roll into next year, and that means it's going to take that much longer for the housing market to recover," said Rick Sharga, a senior vice president at RealtyTrac.
The pace of homes entering the foreclosure process and those ending up as bank-owned properties began slowing sharply last fall, when allegations surfaced that many banks relied on erroneous documents when they foreclosed on thousands of homes.
Since then, banks, federal regulators and state attorneys general have been reviewing how foreclosures were carried out the past two years. That has prompted lenders to resubmit paperwork on foreclosures and, in states where courts play a role in the process, caused a logjam of foreclosure cases.
Lenders also have put off on taking action against delinquent borrowers as U.S. home sales have slowed this year.
In many cases, banks are only going forward with the foreclosure process as quickly as they can sell the properties they already have on the market, Sharga said.
Banks have almost 900,000 properties already on their books, so if the ones on the market aren't selling, there's little incentive for them to take back more homes that will end up sitting vacant.
Combined with the 1.1 million homes in some stage of foreclosure, the properties represent more than three years of housing inventory at the current sales pace — and that's if no other homes go into foreclosure.
The backlog spells further declines in home values, as homes in foreclosure sell at a 20 percent discount on average, and those discounts erode prices throughout a neighborhood.
One bright spot is that the number of home loans that are at least 90 days late has fallen five quarters in a row and are at the lowest level since the start of 2009, according to the Mortgage Bankers Association.
That's partly because loans made in the aftermath of the credit crisis, when lenders tightened underwriting standards, are not becoming delinquent as often as riskier loans made between 2005 and 2007. That means fewer of those loans are likely to into foreclosure.
In all, 214,927 properties received a notice of default, scheduled home auction or home repossession in May, down 2 percent from April and down 33 percent from May last year, RealtyTrac said.
That represents one in every 605 U.S. households. The notices can lead up to a home eventually being lost to foreclosure.
The number of homes receiving an initial notice of default fell to 58,797, the lowest level since December 2006. The notices fell 7 percent from April and 39 percent from a year earlier, the firm said.
Underscoring the scope of the foreclosure delays, initial notices of default, which mark the start of the foreclosure process, have posted annual declines the past 16 months, even though there are some 4 million U.S. homeowners who are at least three months behind on their mortgage. Ordinarily, most of them would already be in foreclosure.
The pace of bank repossessions slowed in May to 66,879 properties, down 4 percent from April and down 29 percent from May 2010, the firm said. In the past eight months, bank repossessions have posted three annual increases and been down the other five.
Still, lenders did take back more homes last month in several states, including Georgia, New York, Virginia, New Jersey and Michigan.
Going by the pace of home repossessions so far this year, Sharga estimates banks will take back 800,000 homes this year, down from more than 1 million last year.
Despite the drop in foreclosure activity last month, several states continue to have outsized foreclosure rates.
Nevada led the nation, with one in every 103 households receiving a foreclosure notice in May. Bank repossessions fell 21 percent from April, but initial notices of default rose 8 percent.
Rounding out the top 10 states with the highest foreclosure rate in May are Arizona, California, Michigan, Utah, Georgia, Idaho, Florida, Illinois and Colorado.
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