UPDATE 2-US mortgage default notices jump in Aug-RealtyTrac

Thu Sep 15, 2011 6:41pm BST

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* Default notices jump 33 pct in Aug-RealtyTrac

* Total foreclosure filings rise, but REOs fall

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NEW YORK, Sept 15 (Reuters) - Default notices on U.S. home loans notched their biggest monthly increase in four years in August, suggesting some of the backlog from documentation issues was easing, data showed on Thursday.

First-time default notices were filed on 78,880 homes last month, marking a nine-month high, according to a report by RealtyTrac. Notices jumped 33 percent from July, the biggest increase since August 2007.

The rise in default filings did not necessarily suggest that a new foreclosure problem was on the horizon but that some of the glut of homes needing to be processed was being reduced, said Rick Sharga, senior vice president at RealtyTrac.

Foreclosure activity was halted temporarily late last year due to claims that lenders relied on "robo-signing" in which documents were signed without reviewing the case files.

"There are probably about 3.5 million loans that should be in foreclosure but aren't yet, and we're going to have to work through that inventory before the housing market can come back," said Sharga. "This is a painful but necessary first step to get the housing market back on a more even keel."

Even though negotiations between banks and state attorneys general over foreclosure practices still are not resolved, some banks did restart foreclosure actions after an April settlement with a number of federal regulators.

JPMorgan Chase & Co (JPM.N), for example, as of the end of June had resumed foreclosure steps in nearly all of the 43 states where it had suspended its actions.

So-called "shadow inventory," or the looming foreclosures that are still expected to hit the market, is a major overhang for a housing sector that is already struggling with a glut of unsold homes.

Still, default notices were down 18 percent from August last year and were down 44 percent from the monthly peak reached in April 2009 during the tail end of the recession.

Total foreclosure filings -- which include default notices, scheduled auctions and repossessions -- were sent to 228,098 homes, a 7 percent increase from July but down 33 percent from August 2010.

Bank repossessions fell 4 percent to a six-month low of 64,813 homes. Repossessions have come down 37 percent from the peak of 102,134 hit in September 2010.

Nevada once again had the highest state foreclosure rate with one in every 118 homes receiving a foreclosure filing in August. Nevada has held the top spot for over four years.

Even so, Nevada saw a 3 percent decrease in filings as scheduled auctions and bank seizures eased. (Reporting by Leah Schnurr, additional reporting by David Henry; Editing by Diane Craft)

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