Foreclosures Rise For Second Straight Month

U.S. foreclosures rose in June, the second consecutive monthly increase following the mortgage abuse settlement in April. New foreclosure starts were filed on 104,294 properties in June, an increase of 4 percent from June 2011 but a 4 percent decrease from May, when they jumped to 109,051 on the heels of the settlement.

For the first time since the second quarter of 2009, foreclosure starts rose in May 2012, as the fraud settlement was weighing on the mortgage market when banks were unwilling to launch new foreclosure filings. Once the fraud case had been settled and banks paid $25 billion in penalties, they restarted foreclosing on homes.

Overall foreclosure activity, which includes default notices, scheduled auctions and bank repossessions, declined for the 21st straight month, affecting 197,834 properties in June. That was a 3.96 percent decrease from May and an 11.18 decrease from June 2011. California's foreclosure rate, as tracked by RealtyTrac, rose to the highest in the U.S., as California's foreclosure rate rose to 18 percent.

The fall in overall foreclosure activity bodes well for the economy and for the health of the banking system. Default notices, the earliest foreclosure notice given by banks, are incorporated in the broad measure and are likely responsible for the drop. Should this be the case, it might signal that the default and foreclosure cycle may be near its end.

Banks would surely be stronger if foreclosure rates declined. Regional banks and other large, diversified financials that are most exposed could rally, such as Wells Fargo WFC and JP Morgan JPM. The two mega-banks are set to report earnings Friday, July 13 and investors could get further insight into the health of the mortgage market from these releases.