LOS ANGELES (AP) — Banks are increasingly placing homes
with unpaid mortgages on a countdown that could deliver a swell of new
foreclosed properties onto the market by early next year, potentially
weighing further on home values.
June provided the latest evidence
of this trend, as the number of U.S. homes entering the foreclosure
process for the first time increased on an annual basis for the second
month in a row, foreclosure listing firm RealtyTrac Inc. said Thursday.
California
in particular saw a big spike in foreclosure starts, or homes placed on
the foreclosure path for the first time. They increased 18 percent
versus June last year, the firm said.
The increase in foreclosure
starts comes as banks make up for time lost last year as the
mortgage-lending industry grappled with allegations that it had
processed foreclosures without verifying documents.
The nation’s
biggest mortgage lenders reached a $25 billion settlement in February
with state officials. And that’s cleared the way for banks to address
their backlog of unpaid mortgages.
Lenders initiated foreclosure
on 12 percent of the loans behind in payment in June — the highest level
since the first half of 2009, according to Fitch Ratings.
"These
properties that are starting the foreclosure process are mostly
homeowners who likely have been missing their payments for a year or
more and just now are officially starting the foreclosure process," said
Daren Blomquist, a vice president at RealtyTrac.
That means the
latest crop of homes entering the foreclosure process does not signal
that there is a fresh wave of homeowners in distress and missing
payments.
Still, the increase in foreclosure starts sets the stage
for a potential increase in homes sold at a discount via short sale,
when the lender agrees to accept less than what is owed on the seller’s
mortgage. Others could end up taken back by banks and placed on the
market also at a sharp discount.
Either way, short of homeowners
obtaining loan modifications or otherwise arranging to exit the
foreclosure process, many of these properties could end up adding to the
inventory of foreclosed homes on the market, dragging down the values
of nearby homes.
Those homes may not hit the market for many months, however.
In
the second quarter, it took an average of 378 days for a U.S. home to
complete the foreclosure process, or the point when a bank takes over
the property, RealtyTrac said. That’s up from an average of 370 days in
the first three months of the year and a record going back to the first
quarter of 2007, the firm said.
In New York, it took an average of
1,001 days for the foreclosure process to run its course in the second
quarter, down from 1,056 days in the first quarter.
Of the homes
that entered the foreclosure process in June, those that end up as
bank-owned properties would likely hit the market a year from now,
Blomquist said.
"However, if they take the short sale route, it may be sooner," he said.

Short sales take, on average, 319 days to sell from the time they enter foreclosure.

A
stronger housing market could mitigate the impact of future
foreclosures on home prices, and home sales are expected to end up ahead
of last year. But many economists still say the market is years away
from a full recovery.
There are some 3 million U.S. homes behind on their mortgages, according to the
Mortgage Bankers Association.
An
additional 629,000 homes were on banks’ books as of June, but not yet
sold. That translates into a 15-month supply, at the current pace of
sales, according to RealtyTrac.
And nearly 13 million home loans
are underwater, or owing more than the house is worth. Those properties
could be at higher risk for entering the foreclosure process.
Even so, the backlog in foreclosures that banks are still dealing with has slowed the
pace of home repossessions.
RealtyTrac forecasts some 700,000 homes will be repossessed by lenders this year,
down from about 1 million last year.
Copyright 2012 The Associated Press.