Foreclosure Rate Sets New Monthly Record - Again

The U.S. foreclosure rate rose 7 percent in July, and set a new record for the third time in five months, according to the foreclosure marketing firm RealtyTrac, in a report released today.

More than 360,000 properties received foreclosure filings last month, according to the report, equal to about one in every 355 U.S. homes. The figure represents a 32 percent increase over the July 2008 rate.

The rising foreclosure rate comes on the heels of sharply rising unemployment earlier this year and falling housing prices that have left many homeowners "underwater" on their mortgages, owing more than the property is worth.

Four states accounted for more than half of all U.S. foreclosures: California, Florida, Arizona and Nevada, which together made up 57 percent of all U.S. foreclosure activity. Nevada posted the nation's highest foreclosure rate for the 31st month in a row, with one out of every 56 homes receiving a foreclosure filing - six times the national average.

Ironically, initial defaults - the first notification in the foreclosure process - fell 18 percent in Nevada in July, due to a new law requiring lenders to offer mediation to homeowners facing foreclosure. That law took effect July 1. Similarly, overall foreclosure activity fell 39 percent in Michigan, another high foreclosure state, owing to a new law freezing foreclosure proceedings for 90 days for homeowners who agree to try to work out a loan modification.

Michigan's foreclosure rate is expected to go up again in upcoming months as the moratoriums expire for homeowners unable to work out modifications and the effects of recent layoffs work their way through the economy.

The increasing foreclosure rate has frustrated government official's efforts to stem home losses. Although the Obama Administration's Making Home Affordable Program has provided trial loan modifications to at least 200,000 homeowners to date, lenders have been reluctant to fully embrace the program, and many homeowner's applications have been turned away or deferred.

The administration has been putting increasing pressure on lenders to be more proactive in helping homeowners avoid foreclosure, but it is unclear what effect those efforts will have.

There is usually a delay of several months between an increase in unemployment and a rise in foreclosures, as newly jobless homeowners exhaust their financial resources, default on their mortgages and eventually move into foreclosure. For homeowners who are underwater on their mortgages, one problem is that they are unable to refinance on an adjustable rate mortgage or similar loan that is resetting to a higher rate, leaving them with an mortgage payment they suddenly cannot afford. Others may simply walk away from a mortgage where they owe more than the property is worth, rather than continue making payments.

The RealtyTrac survey considers any of three types of foreclosure activity as a foreclosure filing - a Notice of Default (initial notification), a Notice of Trustee/Foreclosure Sale, and listing of a property as Real Estate Owned (repossessed by the bank). A single property receiving more than one filing in a single month is counted as a single occurance.