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46 FORECLOSURES RISE IN Q3 DESPITE FALLING TO 8-YEAR LOW IN SEPTEMBER Foreclosure filings, which include default notices, scheduled auctions, and bank repossessions, inched upward nationwide in Q 3 despite dropping to their lowest level in eight years in September, according to RealtyTrac's Q 3 2014 U.S. Foreclosure Market Report. A total of 317,171 residential properties in the U.S. reported foreclosure filings in Q 3, which is a decline of 16 percent from the same quarter in 2013 but an increase of 0.42 percent from Q2, according to RealtyTrac. It was the first quarter-over-quarter increase reported since the third quarter of 2011. RealtyTrac cited a 2 percent increase in default notices and a 7 percent jump in scheduled foreclosure auctions as the reasons for the quarterly increase in foreclosure filings. e number of bank repossessions (REOs) declined by 12 percent from Q2 to Q 3. e number of foreclosure filings in September (106,866) was down 9 percent from August and down 19 percent from September 2013. September was the 48th consecutive month in which foreclosure filings declined on a year-over-year basis. With the recent decline, foreclosure filings nationwide are at their lowest level since July 2006, a total of 98 months. "September foreclosure activity was back to pre-housing bubble levels nationwide, in large part thanks to a continued slide in bank repossessions," said Daren Blomquist, VP at RealtyTrac. "However, a recent rise in scheduled foreclosure auctions in many markets across the country shows lenders are continuing to clean house of lingering delinquent loans. is rise in scheduled auctions foreshadows a corresponding rise in bank repossessions and auction sales to third-party buyers in the coming months." e five states with the highest foreclosure rate were Florida, Maryland, New Jersey, Nevada, and Illinois, according to RealtyTrac. e five metropolitan statistical areas with the highest foreclosure rates were Orlando, Florida; Atlantic City, New Jersey; Macon, Georgia; Ocala, Florida; and Palm Bay-Melbourne-Titusville, Florida. Meanwhile, RealtyTrac reported that the foreclosure process is taking longer nationwide. In Q 3, properties were in the foreclosure process for an average of 615 days, an increase of 7 percent from Q2 and 13 percent from Q 3 2013. It is the longest average time for the foreclosure process since RealtyTrac began tracking the data in 2007. New Jersey had the longest average foreclosure time of any state at 1,064 days, according to RealtyTrac. e number of default notices nationwide in Q 3 increased by 2 percent from the previous quarter but declined by 11 percent from the same quarter a year ago, according to RealtyTrac. It was the ninth straight quarter in which default notices declined year-over-year nationwide. Ten states saw a year-over-year increase in default notices in Q 3, led by Indiana (up 59 percent), Oklahoma (up 49 percent), Massachusetts (up 38 percent), New Jersey (up 19 percent), and Iowa (up 12 percent). Scheduled foreclosure auctions in the U.S. totaled 139,721 for Q 3, up 7 percent from Q2 but down by 1 percent from Q 3 2013, marking the 15th straight quarter in which foreclosure auctions declined year-over-year. e number of scheduled foreclosure auctions rose on a year-over-year basis in 22 states, led by North Carolina and Oregon with an 85 percent increase each, New Jersey (66 percent), Oklahoma (58 percent), and New York (57 percent). Scheduled foreclosure auctions increased in 32 states quarter-over-quarter, led by Michigan with a 34 percent hike, followed by Maryland (up 30 percent) and California, Texas, and Arizona with a 25 percent increase each. REO activity is down nationwide; in the third quarter, lenders repossessed 74,271 residential properties in the U.S. in Q 3, representing a decline of 12 percent from Q2 and a drop of 38 percent from Q 3 2013. It was the 16th consecutive quarter in which REO activity declined year-over- year. Still, REO activity increased in Q 3 from the same period a year ago in seven states, led by Maine (up 24 percent), Maryland (up 19 percent), Oregon (up 13 percent), Georgia (up 11 percent), and New Jersey (up 5 percent). INDEX SHOWS 26% JUMP IN BANKS' COMPLIANCE BURDEN FOR Q3 Community financial institutions are put- ting more of their resources toward compli- ance, according to the 2014 ird Quarter Banking Compliance Index (BCI), released by Connecticut-based compliance management systems provider Continuity Control. e latest BCI indicated that the number of hours and employees required of commu- nity financial institutions to meet regulatory compliance demands jumped by 26 percent in the third quarter. Research revealed that in order to comply with the 82 regulatory changes added in Q 3, 653 additional hours were required of the average community bank. e number of hours equates to 1.86 full-time employees, requiring the institutions to spend $45,264 on average during Q 3. "Anecdotally, most bankers say they felt like the third quarter was a light one in terms of compliance, but the data shows otherwise," said Pam Perdue, EVP of regulatory insight at Continuity Control. "e number of regulatory changes last quarter reached the highest level we've seen since 1995. Even when the changes are minor in scope, they require time to iden- tify, analyze, and implement. Upticks like these historically have forced banks to add headcount and divert time, money, and staff from more profitable areas. ose traditional responses are unsustainable in 2014 and beyond." Perdue said that a major factor in the com- pliance cost increase was the rising demand for compliance professionals brought on by increased scrutiny of compliance staffing from regulators, making it tougher and more expen- sive for banks to fill these positions. "We're seeing competition for top talent increase," Perdue said. "Knowledgeable com- pliance and risk officers are essential for most banks today, but they can be hard to come by. As a result, salaries keep rising, bumping already high compliance costs to even higher levels." ere are ways to help keep the cost of compliance from spinning out of control, ac- cording to Perdue. "Technology can help rein in compliance- related staffing costs," Perdue said, "as well as demonstrate to regulators that a proper compliance management system is in place to keep up with the growing regulatory volume. Enforcement action levels remained high in the third quarter, with an average of seven items per action—up from just five items in the previous quarter."

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