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Bank Repossession of Homes Sets New Record in August

The nation's banks repossessed a record number of homes in August, according to industry sources.RealtyTrac, an online foreclosure sale site, will release its monthly numbers on Thursday, but sources there confirm the number of repossessions will come in just shy of 100,000 for the month.

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That is the highest since the site began tracking in 2005. July's repossession number was the second highest on record. The last highest was 93,777 in May of 2010.

Notices of Default, which are the first step in the foreclosure process, are up slightly but mostly thanks to a jump in California, where the numbers had been artificially low of late, as banks tried to modify borrowers.

"With respect to the NOD increase, I think it is the modification redefault wave beginning to build and new modifications slowing to a trickle, indicating banks have lost their primary borrower re-leveraging tool," says mortgage industry consultant Mark Hanson.

Yesterday J.P. Morgan Chase cited the "shadow inventory" of foreclosed properties as one of their primary reasons for pushing back their expectations for a housing recovery as far as 2014. No question, a growing supply of repossessed properties will put further downward pressure on home prices, especially given the current 12.5 month supply of existing homes already for sale.

The question now is: Where does the government go from here? Some argue that housing needs to correct on its own, without artificial stimulus, as painful as it will be, in order to recover fully. What the Obama Administration has to decide is, will that correction, involving millions of foreclosures, take too large a toll on the greater economy?

Questions? Comments? RealtyCheck@cnbc.com

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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