Banks Ramp Up Foreclosure Actions - Good Sign for Housing Sector?

The AP's Alex Veiga reports today that banks are apparently ramping up actions against homeowners who have fallen behind on their mortgage payments, meaning the lull in foreclosures may be over. The story cites a report from RealtyTrac that said the number of homes that received an initial default notice -- the first step in the foreclosure process -- jumped 33 percent in August from July.

While not good news for homeowners behind on their mortgages, the upturn in default notices could signal better times ahead for the beleaguered housing industry, the article points out.

A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn't likely to occur as long as there remains a glut of potential foreclosures hovering over the market.

Foreclosures weigh down home values and create uncertainty among would-be homebuyers who fret over prospects that prices may further decline as more foreclosures hit the market. There are about 3.7 million more homes in some stage of foreclosure now than there would be in a normal housing market, according to Citi analyst Josh Levin.

"This bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery," Levin said in a client note this week.

As we've reported in the past (here and here), the overall economy is not likely to improve significantly until the housing market does.

You can read the full AP report here.