Tribune staff and wire report
7:48 a.m. CDT, August 9, 2012
Foreclosure activity in the Chicago area continued to be well ahead of its year-ago pace in July, as lenders put new homes into foreclosure and pushed through existing cases that languished fore more than a year while federal and state authorities investigated lenders’ foreclosure practices.
During July, 11,885 homes in Cook, DuPage, Kane, Kendall, Lake, McHenry and Will counties received a foreclosure notice, RealtyTrac Inc. said Thursday. Of that total, 5,374 homes entered the foreclosure process, while 3,274 were scheduled for a court-ordered sale and another 3,237 were repossessed by lenders and became bank-owned.
While the overall number is down from the 13,092 foreclosure notices issued in June, it is 37 percent higher than the level of activity in July 2011.
In Cook County alone, more than 7,500 properties began the foreclosure process during June and July.
The trend comes as banks work to 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, clearing the way for banks to address their backlog of unpaid mortgages.
On average, 104,000 homes have entered the foreclosure process each month going back to May. That’s well below the 178,000 per-month average in 2009, the year with the highest monthly average, RealtyTrac said.
The increase in homes entering the foreclosure process raises the possibility that more properties could end up being foreclosed upon in coming months. But of late, banks have been dialing back home repossessions and increasingly allowing the borrower to sell the home in a short sale. That’s when the bank agrees to accept less than what the seller owes on the mortgage.
Banks took back 21 percent fewer homes last month than in July last year, RealtyTrac said. Repossessions were down 1 percent from June. They’ve been down on an annual basis every month going back nearly two years.
“Lenders are much less likely now than they were even a year ago or two years ago to repossess a property after they’ve started the foreclosure process,” said Daren Blomquist, a vice president at RealtyTrac.
Completing the foreclosure process can potentially open banks up to liability if they’re accused of improper procedures. And short sales, on average, sell for $25,000 more than a bank-owned property, Blomquist said.
As a result, lenders are much more likely to look for alternatives, such as a short sale, a loan modification or refinancing.
So far this year, home repossessions have averaged about 57,000 a month. That puts the nation on track for just under 700,000 completed foreclosures this year, below the 800,000 recorded in 2011.
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. The majority of the loans entering the foreclosure process are mortgages that date back to the housing bubble years, Blomquist said.
Even so, the increase in foreclosure-starts could boost the number of homes that end up on the market for sale at a sharp discount to other properties. That means, barring another outcome, many of the homes that entered the foreclosure pipeline in recent months could end up weighing down the values of nearby homes when they hit the market.
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.
The number of homes receiving foreclosure-related notices last month increased generally in states where the courts play a role in the foreclosure process. Among them: New Jersey, Florida, Ohio and Illinois.
Many homes on the foreclosure path were left in limbo in those states last year, while mortgage lenders sorted out the foreclosure abuse allegations.
In contrast, foreclosure activity was down sharply in Arizona and California, foreclosure hotbeds throughout the housing downturn, but states where the court does not factor into the foreclosure process.
That didn’t keep California from posting the nation’s highest foreclosure rate last month. One in every 325 households reported a foreclosure-related notice in July, more than twice the national average.
– Tribune staff reporter Mary Ellen Podmolik and the Associated Press contributed to this report.
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