NEW YORK ( TheStreet) --A large and growing backlog of foreclosures threaten the housing recovery in New York and New Jersey, according to economists at the New York Federal Reserve. While home prices have recovered and other measures of housing activity have stabilized, the share of mortgages in foreclosure in the two states exceed the national average. In Northern New Jersey the share of homeowners in foreclosure rose to nearly 8% in 2012, while at the national level the rate has dropped to about 4%. In downstate New York, which includes New York City metro area, Long Island and Fairfield County, Connecticut, the rate hovered above 7%. The increasing rate of foreclosures "creates challenges in sustaining and broadening the recovery we have in the region," said Jaison Abel, senior economist at the New York Fed. He said downward pressure on the market is likely as these foreclosures work their way through the courts. New York and New Jersey are among the 26 states that have adopted a judicial foreclosure process, where the bank is required to prove in court that the borrower is in default in order to foreclose. In the aftermath of the housing bust, the flood of foreclosures overwhelmed the courts in these states. New foreclosure cases in New York, for instance, are projected to reach roughly 24,000 by the end of 2012, a 43% increase from 2011, according to a recent report on foreclosures submitted to lawmakers, as reported by Reuters. That is still well short of the peak in 2009 and 2010, before the robo-signing scandal, when officials at big banks including Bank of America, JPMorgan Chase, Citigroup and Wells Fargo signed off on a huge number of foreclosures without verifying documents and following required procedures. Post the scandal, the number of foreclosures across the country have reduced, but courts have heightened their scrutiny of foreclosure cases, while states have toughened laws to protect borrowers from improper foreclosure practices. New York now requires banks that initiate a foreclosure action to file an affirmation certifying the accuracy of supporting court documents, something that some banks have had difficulty complying with, according to an annual report on foreclosures submitted to lawmakers.