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May Foreclosures Surge 9 Percent from April's 4-Year Low

Real restate data tracker RealtyTrac reported Thursday that foreclosure activity rose 9 percent in May as compared with the month prior as banks resumed normal procedures with the robo-signing settlements behind them.  There were just under 206,000 foreclosure-related filings last month, including bank repossessions, notices of default, and scheduled auctions.  It marked the first increase in foreclosure activity since the first month of the year.

The majority of the increase in foreclosure activity came in the form of foreclosures, which surged 7 percent to just under 55,000 just one month after setting a new four-year low.  Housing insiders have been warning for several months that lenders would eventually ramp up the foreclosure engine again as the big banks settled allegations of thousands of improper foreclosures in recent years.  The nation's five largest mortgage lenders reached a settlement for $26 billion in April, paving the way for last month's surge in home seizures.  And foreclosure starts increased 12 percent a month ago, suggesting that more homes may be repossessed in the coming months.

Of the 50 states, Georgia suffered from the worst foreclosure rate, marking the first time since early 2006 that the Peach State led the nation in homes lost to foreclosure.  The usual suspects, Arizona, Nevada and California were second, third and fourth-highest in terms of foreclosure rate.  Georgia's high rate of foreclosure was also evident in its biggest city, as Atlanta had the second-highest foreclosure rate of the twenty largest metro areas across the nation, right behind Riverside, California.  Pheonix and Chicago rounded out the top four.

Despite last month's pickup in home repossessions, matters could be far worse, analysts say as lenders in recent months have become much more open to the idea of a short sale, in which a delinquent borrower is given permission to sell the home for less than what is owed.  Short sale homes are typically discounted as compared with non-distressed properties, but to a lesser extent than homes seized by the bank, causing less harm to home prices.