“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 here.’’
Foreclosure activity began to slow last fall after problems surfaced with the way many lenders were handling foreclosure paperwork, namely shoddy mortgage paperwork comprising several shortcuts known collectively 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 lenders’ 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 to occur as long as there remains a glut of potential foreclosures hovering over the market.
Foreclosures weigh down home values and create uncertainty among would-be homebuyers who fret over prospects that prices may further decline as more foreclosures hit the market. There are about 3.7 million more homes in some stage of foreclosure now than there would be 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.
