WASHINGTON – Lenders are notifying more delinquent homeowners that they face foreclosure, a step toward clearing a backlog of properties and helping to accelerate a housing recovery.

Initial notices of foreclosure, the start of the process, jumped 6 percent in the second quarter from a year earlier, the first annual increase since 2009, according to RealtyTrac Inc., a seller of housing market data. Banks at the same time found alternatives to the final step of seizing the home, either by working with the borrower or by agreeing to sell properties for less than what was owed, with repossessions falling 22 percent.

“You have to get to the point where the market can heal itself, and foreclosures and price adjustments are the only way that can happen,” said Anthony B. Sanders, economics professor at George Mason University in Fairfax, Va.

The housing market’s rebound has been restrained by the so-called shadow inventory of homes with mortgages at least 90 days delinquent, in foreclosure or already owned by banks. Foreclosures had been stalled since late 2010, when state attorneys general and federal regulators began investigating abuses by banks, including lost or doctored paperwork. They started to pick up again after the nation’s five biggest banks settled the probe for $25 billion in February.

“The market has to deal with these distressed properties at some point and I believe we’ve delayed it long enough, so seeing these increases isn’t necessarily a bad thing,” said Daren Blomquist, a spokesman for Irvine, Calif.-based RealtyTrac. “The market has strengthened and is more equipped to absorb this additional foreclosure inventory.”

Mortgage delinquencies are declining, with the share of home loans at least 30 days late dropping to 7.4 percent in the first quarter from 7.58 percent in the prior three months, according to the Mortgage Bankers Association. And demand for real estate is rising amid record-low borrowing costs and tight inventories of available real estate.

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RealtyTrac lowered its projection for home seizures in 2012 to 700,000 from 1 million, Blomquist said.

Foreclosure starts — notices of default or scheduled auctions — increased in 31 states in the second quarter from a year earlier..

The homes that do eventually end up in foreclosure may initially spur another drop in prices as the inventory reaches the market, said Mark Zandi, chief economist of Moody’s Analytics Inc. in West Chester, Pa. He predicts that home prices will decline 1 percent this year and increase by 1 percent in 2013.

 


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