JEFFREY BROWN: The housing market is showing more signs of mending from the depths of the foreclosure crisis.

A new report from RealtyTrac finds banks are repossessing fewer homes than a year ago, and general foreclosure activity has declined for 22 consecutive months. Still, there was plenty of sobering news. The number of homes in July that received an initial notice of default, the first step in a foreclosure, was up 6 percent from a year ago, and nearly 60,000 homes are being repossessed by lenders each month.

California has the highest foreclosure rate, with one in every 325 homes receiving a foreclosure notice last month.

Guy Cecala watches all this closely as CEO and publisher of "Inside Mortgage Finance," a housing industry research publication.

Welcome to you.

GUY CECALA, "Inside Mortgage Finance": Thank you, Jeff.

JEFFREY BROWN: So, filings are down, continuing a trend.

Explain that part of the equation. What's going on?

GUY CECALA: Well, filings are down basically means that we're seeing less people getting into trouble and -- due to job loss or some -- basically an improving economy is helping the number of people flowing into the system.

But we still have a lot of people who have been in the system for a while and are still facing foreclosure.

JEFFREY BROWN: Before we get to that -- so foreclosure action, I just want to understand what we mean by these numbers. Parse these numbers a little bit for us. What does that mean?

GUY CECALA: Right.

Well, there are a couple steps in a foreclosure. Obviously, the first one is you go into default. And legally someone's got to file a default notice, usually the lender, on your -- on their behalf, and then the next thing they do is initiate a foreclosure. The final step that may take place a year later is actually evicting someone from a home and having a foreclosure sale. So there are many steps along that way.

JEFFREY BROWN: Now, also, as you said a big decline in the bank repossessions of houses, what's led to that?

GUY CECALA: I think there's been some improvement in the situation, in the marketplace that we're seeing in terms of foreclosures overall.

The inventory of foreclosures is down. It's probably the lowest level we have seen in three years. In fact, the Mortgage Bankers Association released data today on that foreclosure inventory. So there are some improving signs. It's just that it's not across the board yet and certainly it's a huge problem. We're far from outside of the foreclosure crisis.

JEFFREY BROWN: Well, explain the other part of the equation. The -- at the same time the filings are down new foreclosures are up.

GUY CECALA: Yes.

JEFFREY BROWN: What does that mean?

GUY CECALA: That pretty much means that lenders, particularly in what we call judicial foreclosure states, the ones they have to get -- go through court, are working through a backlog that built up last year due to pending litigation.

The attorney generals in the United States were all banding together to go after some of the major servicers, and basically a lot of foreclosures were put on hold, or at least the final step of trying to sell off the property.

JEFFREY BROWN: Bring us up to date on that, because we watched it carefully. There was that -- there was that -- the backlog, as you say, and a kind of stoppage, right, and then the settlement.

So where does all that stand?

GUY CECALA: Well, theoretically, it's opened the door for servicers to proceed, but somewhat cautiously, in pursuing foreclosures now. And in some of the states, the ones with judicious foreclosures -- judicial foreclosures, we're starting to see action pick up, meaning more foreclosures. They are trying to work through the backlog.

JEFFREY BROWN: All right.

GUY CECALA: But it's still a slow process.

JEFFREY BROWN: So new ones increasing, but overall pool of people in the foreclosure going down?

GUY CECALA: Exactly.

JEFFREY BROWN: OK.

GUY CECALA: We're still selling. The banks are doing a good job in terms of selling the properties once they come out of foreclosure, too. And that's a sign of a healing housing market and the fact that there's more demand than there probably has been in four or five years.

JEFFREY BROWN: Now, is this market -- this is still a regional phenomenon, right? It totally depends where you are?

GUY CECALA: Exactly.

It varies dramatically by region. I think we have been closely watching what we call the sand states, parts of California, Nevada, Arizona, and Florida, because they were the hardest hit by the foreclosure crisis, and to some extent they're showing the most immediate signs of improvement.

We're starting to see some home prices actually move upward in those areas.

JEFFREY BROWN: Are there still some -- well, you say California, but California, as we said, still that has most.

GUY CECALA: It is. And California is like...

JEFFREY BROWN: Because of the depth of the problem.

GUY CECALA: It is. It's the largest state in terms of people, mortgages and everything else.

It's also like three different regions. Like, San Diego's very different than the San Francisco housing market. So it's hard to make some generalities about a state that size.

JEFFREY BROWN: And what about regions or states that are still really stuck and still really mired?

GUY CECALA: Well, there are some states, like Michigan, Ohio that never really had a housing boom, and we still don't see any recovery. They basically just had the housing bust part of it.

JEFFREY BROWN: What about other signs that you look at for the health of the sector overall?

I saw Fannie Mae and Freddie Mac showed a profit this week. What does that tell you?

GUY CECALA: Well, that's very interesting because they're kind of a barometer of the health of the housing market and the mortgage market, since they have been posting literally billions of dollars of loss. Taxpayers have paid something like $142 billion into those companies...

JEFFREY BROWN: That's why I noted the profit.

GUY CECALA: ... because of the losses they have taken, and a lot of it has to do with the fact that not only have they had mortgages go bad and they have had to repossess the properties, but when they have had to turn around and sell them, they have sold them at much less than the value of the property was originally.

And both of those things are improving. They're selling more properties at higher prices, and they're seeing less loans go bad.

JEFFREY BROWN: All right, Guy Cecala on the housing market, thanks so much.

GUY CECALA: Thank you.