Despite predictions that a massive settlement between the states and five mortgage servicers would unleash a flood of foreclosures this year, the flood is more of a trickle.

The latest data from RealtyTrac, a company tracking U.S. foreclosures, shows default notices, scheduled auctions and bank repossessions were reported on 191,925 U.S. properties in July, a decrease of three percent from the previous month and a decrease of 10 percent from July 2011.

The report also shows one in every 686 U.S. housing units with a foreclosure filing during the month.

Uneven descent

“U.S. foreclosure activity continued its uneven descent in July as the overall numbers declined on an annual basis for the 22nd straight month, but properties starting the foreclosure process increased on an annual basis for the third straight month,” said Daren Blomquist, vice president of RealtyTrac. “Recent foreclosure activity patterns vary significantly from state to state, often hinging on the level of dysfunction that exists in each state’s foreclosure process."

For example, Blomquist says in states like Florida, Illinois and New Jersey, where processing and procedural issues slowed foreclosure activity to a crawl last year, foreclosure numbers continue to rebound off those artificially low levels. But in states like Texas, Arizona and Virginia, where the average time to foreclose is well below the national average of 378 days, foreclosure activity continues on a long-term downward trend.

REOs are down

The decline in overall foreclosure activity was driven primarily by a 21 percent year-over-year decrease in bank repossessions (REO) the data show. But no one is suggesting the foreclosure crisis has suddenly been resolved.

Blomquist notes that recent legislation and court rulings could lengthen the foreclosure process in some of the states with the shorter timelines, resulting in a temporary foreclosure lull and subsequent rebound in those states as well.

He also notes the "conspiracy theories" floating around the real estate industry, that banks are purposefully holding back REO properties from the market. The theory goes that banks don't have to show the loss until the property actually sells. Keeping it on the books at an inflated price makes the bank's balance sheet better than it actually is.

Another theory is that banks are trying to control the flow of foreclosures to the market to keep prices on their current slow, steady rise.

'Malevolent masters'

"This is the stuff conspiracy theorists latch on to, always looking for an opportunity to portray the big banks as malevolent masters of the housing market," Blomquist wrote in a recent op-ed piece. "While many of the conspiracy theories involving the big banks are unfounded, there are some rational reasons why banks would want to intentionally restrict the supply of bank-owned properties available for sale."

Meanwhile, the July foreclosure numbers show foreclosure starts increased on a year-over-year basis in 27 states, led by Connecticut, New Jersey, Pennsylvania, Indiana and Massachusetts, which all happen to be judicial foreclosure states. In these states foreclosures were, in fact, put on hold while the settlement was worked out with the five major lenders. Those cases are now moving forward.

California posted the nation’s highest state foreclosure rate in July despite an 11 percent decrease in foreclosure activity from the previous month and a 25 percent drop from July 2011. One in every 325 California housing units had a foreclosure filing during the month, more than twice the national average.

The state where the foreclosure problem is almost non-existent is North Dakota, where the oil and gas boom has transformed the economy. In July, there were only three foreclosure filings in the entire state, for a rate of one in 105,833 housing units.

Story provided by ConsumerAffairs.