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Servicers started more foreclosures in May from the month before but filings were still down 4% from last year, according to RealtyTrac.
"U.S. foreclosure activity has now decreased on a year-over-basis for 20 straight months including May, but the jump in May foreclosure starts shows that it's going to be a bumpy ride down to the bottom of this foreclosure cycle," said RealtyTrac CEO Brandon Moore.
The market expected more foreclosures after the $25 billion settlement was struck in March over past abuses and documentation problems. But most of the foreclosures started in May will likely end up as short sales instead of REO, Moore said.
In the first quarter, homes sold before foreclosure netted the bank $27,000 more on average than a traditional REO.
"More banks are now recognizing that treating the problem of delinquent mortgages with short sales rather than bank repossessions can help them minimize their losses and also avoid taking on more REOs, which they then have to manage, maintain and market for sale," Moore said.
Still, the process in some areas began to restart. The more than 205,000 filings in May nationally is the first time above the 200,000 level since February.
Keller Mackie, a partner at the Texas foreclosure firm Mackie Wolf Zientz & Mann, said at HousingWire's REO Expo Wednesday that foreclosure filings in the Lone Star State picked up 25% to 30% since the settlement was signed.
For the first time since 2006, the highest foreclosure rate in the country belonged to Georgia, where filings increased 32% from April, according to RealtyTrac.
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