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TheStreet Open House

4 Things Real Estate Investors Need to Know About Foreclosures

Stocks in this article: BAC JPM WFC FNMA FMCC

NEW YORK ( TheStreet) -- Nearly 1.5 million properties were in some stage of foreclosure in the first quarter of 2013, according to a new quarterly analysis of foreclosure inventory by RealtyTrac.

That is up 9% from a year ago, but is down 32% from the peak in December 2010.

The annual increase in foreclosure inventory at a national level was caused by a 59 percent jump in pre-foreclosure inventory.

Pre-foreclosure is the period before the home is put up for public auction. With short sales on the rise, more homes are being sold in the pre-foreclosure period.

Inventory of homes scheduled for foreclosure auction decreased 25 percent and inventory of bank-owned homes decreased 3 percent.

Fannie Mae (FNMA), Freddie Mac (FMCC) accounted for 12% of the foreclosure inventory, followed by Bank of America (BAC - Get Report), Wells Fargo (WFC - Get Report) and JPMorgan Chase (JPM - Get Report). JPMorgan saw its foreclosure inventory increase 58% year-on-year.

Smaller servicers who have been gaining market share from the big banks posted the biggest rise in foreclosure inventory. Nationstar Mortgage (NSM) saw its foreclosure inventory more than double.

Foreclosure inventory has been declining as default rates have improved due to the economic recovery and banks have increasingly pursued alternatives to foreclosure such as short sales and mortgage modifications.

Still, the trends in recent months have been uneven. States that follow a judicial foreclosure process where banks need court approval to file a foreclosure action against a delinquent borrower continue to see a rise in foreclosures. The foreclosure process in these states now runs into several years.

Banks are also still adjusting to new foreclosure laws enacted at various states, which has slowed down the pace of foreclosures. But banks are still dealing with elevated levels of problem loans so while foreclosure activity is heading lower overall, periodic reversals are likely as banks push foreclosures through the pipeline.

"Delinquent loans that fell into a deep sleep after the robo-signing controversy in late 2010 are gradually coming out of hibernation following the finalization of the national mortgage settlement in April 2012," said Daren Blomquist, vice president at RealtyTrac in a statement. "The settlement provided some closure regarding accepted foreclosure processing practices, and as a result lenders have been reviving more of these delinquent loans and pushing them into foreclosure over the past 12 months, particularly in states where a lengthy court process has resulted in a bigger backlog of non-performing loans still in snooze mode."

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