BAP Blog Sharp rise in foreclosures as banks become more agressive

More U.S. homes are entering the foreclosure process, but they're taking ever longer to get sold or repossessed by lenders. The number of U.S. homes that received a first-time default notice during the July to September quarter increased 14 percent compared to the second quarter of the year as reported by RealtyTrac Inc. Thursday. This increase signals that banks are moving more aggressively now against borrowers who have fallen behind on their mortgage payments than they have since industrywide foreclosure processing problems emerged last fall. Those problems resulted in a sharp drop in foreclosure activity this year. The recent surge in default notices means homeowners who haven't kept up their mortgage payments could now end up on the foreclosure path sooner. The initial default notices are first step in the process that can eventually lead to a home being taken back by a lender. A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. The third-quarter increase in initial defaults was largely a product of a spike in August. In September, default notices were off 10 percent from August, RealtyTrac said. The jump in initial defaults during the July to September period is significant because it is the first increase after five consecutive quarterly declines, which suggests that banks are gradually addressing their backlog of homes in foreclosure and are now beginning to move on more recent home loan defaults. Foreclosure activity did slow last fall after problems surfaced with the way many lenders were handling foreclosure paperwork which included 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. While the banks appear to be more willing to start the foreclosure countdown on borrowers, they haven't put a dent in the overall length of the foreclosure process. In the third quarter, it took an average of 336 days, or 11.2 months, for a U.S. home to go from receiving an initial notice of default to being foreclosed by a lender, RealtyTrac said Lenders took back 196,530 homes during the quarter, down 4 percent from the second quarter and down 32 percent from the same quarter last year. Banks remain on track to repossess some 800,000 homes this year which is down from more than 1 million last year.