The number of homes heading into foreclosure declined to the lowest mark in six years, but home repossessions in the U.S. actually rose to a nine-month high in November, according to foreclosure listing firm RealtyTrac Inc.
The combination of declining foreclosure starts and a sharp rise in homes taken back by lenders indicates banks are moving to complete foreclosures on homes with mortgages that have gone unpaid for a year or two, or longer. It's likely that the borrowers who owned these homes already tried to refinance, get a loan modification or sell the home as a short sale, but did not succeed, according to Daren Blomquist, a vice president at RealtyTrac.
Banks completed foreclosures on 59,134 homes last month, an increase of 11 percent from October and up 5 percent from November last year. Last month marked the first annual increase in bank repossessions since October 2010, when allegations of abuses by the mortgage industry led many lenders to temporarily halt foreclosures.
But the number of homes entering the foreclosure process or scheduled for auction for the first time, so-called foreclosure starts, sank to 77,494. That's a decline of 13 percent from October and a drop of 28 percent from November last year, RealtyTrac reported. It's the lowest number of foreclosure starts since they hit 72,163 in December 2006.
Banks and mortgage servicers are more often favoring short sales as an alternative to foreclosure. Federal and state lawmakers have been trying to slow down the foreclosure process or make loan modifications a more likely option for homeowners, and those moves are apparently having an impact.
The percentage of mortgage-holding homeowners at least two months behind on their payments sank in the third quarter to the lowest level in more than three years, according to credit reporting firm TransUnion.
Foreclosure activity, which RealtyTrac measures as the number of homes receiving a notice of default, scheduled auction or bank repossession, increased on an annual basis in 23 states and Washington D.C. At the state level, Florida had the highest foreclosure rate of any other state, with one in every 304 households in some stage of foreclosure, or twice the national average. Rounding out the top 10 states by foreclosure rate were Nevada, Illinois, California, South Carolina, Ohio, Arizona, Georgia, Michigan and Indiana.
Bank repossessions remain elevated and on pace to exceed 650,000 this year, according to RealtyTrac, but that would be down from 800,000 last year.
"We're seeing more signs of the light at the end of the tunnel, with foreclosure starts being down," Blomquist said. "But the market still has to deal with the properties that already started foreclosure, and that could keep the (bank repossession) numbers stubbornly high the next year."
Lenders, meanwhile, continue to adjust to new foreclosure ground rules set forth in a $25 billion settlement reached in February between five major banks and federal and state government officials over claims that many lenders had processed foreclosures without verifying documents.