After rising over 30% a year for the past four years, foreclosure starts will finally begin to decline nationally next year according to UFA LLC, a risk management firm that forecasts mortgage and consumer loan performance by ZIP code.

A slowing of house-price depreciation, a reviving economy, tighter underwriting of recent loan vintages and burnout of the worst vintages from three to five years ago will make the improvement possible, said Dennis Capozza, a professor of finance with the Ross School of Business at the University of Michigan and a founding principal of UFA in Ann Arbor, Mich.

"Working against the welcome decline in foreclosures is the steep increase in unemployment, which will interact with the large numbers of homeowners who are underwater to prevent even greater declines in foreclosures," Capozza said.

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