Foreclosure filings increase at slower rate; banks helping out

— -- Foreclosure filings in August were up 27% compared with the same month a year ago, but that's a significantly slower pace than in previous months, according to data released Friday.

Nationwide, 303,800 homes received at least one foreclosure-related notice in August, up 12% from July, RealtyTrac said. That means one in every 416 U.S. households received a foreclosure filing last month.

August's increase, however, was smaller than the two prior months. June and July both had year-over year increases in foreclosure filings of 50% or more. Still, the total number of foreclosure filings is the highest since RealtyTrac began issuing its report in January 2005.

RealtyTrac monitors default notices, auction sale notices and bank repossessions.

Another report said top banks and savings-and-loans increased their efforts to keep troubled borrowers in their homes in the second quarter.

Lenders modified 112,353 first-lien mortgages, up 56% from the previous quarter. A total 140,155 payment plans were put into effect, up from 136,367, putting the number of changes to help homeowners at 252,508.

The data, issued jointly by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, also show that foreclosures rose to 288,740 in the second quarter from 278,857 in the first quarter. Delinquencies also increased.

"As banks continue to work through this portion of the credit cycle, we are watching closely to ensure they have safe and sound risk management strategies in place," Comptroller John Dugan said.

RealtyTrac said more than 90,893 properties were repossessed by lenders nationwide last month — up from 43,141 in August 2007.

The three states with the highest foreclosure rates were Nevada, California and Arizona, in that order, RealtyTrac said. Florida, Michigan, Georgia, Ohio, Colorado, Illinois and Indiana rounded out the top 10, although Michigan, Georgia, Ohio and Colorado all reported lower rates than a year ago.

Weak sales, sinking home values, tighter home loan lending practices and a slowing economy hamstrung by high fuel prices has left some homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan.

Banks and mortgage investors are also holding a glut of foreclosed properties and are slashing prices to get them off the books.

On Thursday, four Democratic senators urged mortgage companies Fannie Mae and Freddie Mac to freeze foreclosures for 90 days on loans they hold. The troubled companies, seized by the government Sunday, should help struggling borrowers swap their mortgages for more affordable loans and stay in their homes, the lawmakers said.

An estimated 2.8 million U.S. households will face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's Economy.com.

James Saccacio, chief executive officer of RealtyTrac, says the lower percentage increase in foreclosure filings last month is due to a big spike in activity in August 2007. Last month, default activity was up 10% from a year ago and auction activity up 7% year-over-year, Saccacio said.

"The increases in default and auction activity could be slowing down partly as the result of new legislation passed in several states that is designed to give homeowners in distress more time before foreclosure proceedings are initiated," Saccacio said.

The next six months will be critical in terms of the housing crisis, said Albert Saiz, assistant real estate professor at Wharton School of Business. Consumers and investors will be tracking volatile financial markets, judging the success or failure of this year's housing bill, monitoring the government bailout of Freddie and Fannie, and anticipating the impact of a new president, he said.

On the bright side, if home prices and sales stabilize or improve, the foreclosure situation could get better.

But the slow economy, high unemployment and volatile financial markets present obstacles to improvement in the foreclosure situation, Saiz said.

Together, California, Florida and Arizona accounted for more than half the nation's volume of foreclosure activity.

Last month, California's foreclosure activity increased more than 40% from July and was up more than 75% from August 2007.

The California cities of Stockton, Merced and Modesto were 1-2-3 in top metro foreclosure rates. July's leader, the Cape Coral-Fort Myers, Fla., metro area, dropped to sixth.

Contributing: Reuters