U.S. mortgage foreclosure filings dropped for a second straight month in February, and notched the smallest annual increase in four years as housing-rescue efforts contained activity, a report released on Thursday showed.

Foreclosures are by far one of the biggest threats to the U.S. housing market, which remains highly vulnerable to setbacks and heavily reliant on government intervention. If foreclosures keep dropping, it will be one of the strongest signals yet the market is on the path to recovery.

Foreclosure filings -- including mortgage default notices, house auctions and home repossessions by banks -- were reported on 308,524 properties in February, down 2 percent from January, but still up 6 percent from the year-ago month, real estate data firm RealtyTrac said.

The 6 percent year-over-year increase we saw in February was the smallest annual increase we've seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity, said James J. Saccacio, chief executive officer of RealtyTrac, in a statement.

Proclaiming an end to rampant foreclosures, however, is premature. Indeed, many say foreclosure prevention programs have fallen short of addressing the trend's current drivers.

This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity -- albeit at a historically high level that will likely continue for an extended period, he said.

While February's drop may indicate that efforts to prevent foreclosure are gaining traction, the data has been volatile.

In addition, severe winter weather appears to have temporarily slowed the processing of foreclosure records in some Northeastern and Mid-Atlantic states, he said.

One in every 418 U.S. housing units received a foreclosure filing in February, Irvine, California-based RealtyTrac said in its February 2010 U.S. Foreclosure Market Report.

Furthermore, more than 300,000 properties received foreclosure filings for a 12th straight month, RealtyTrac said.

REOs, or real estate-owned properties, activity nationwide was down 10 percent from the previous month, but up 6 percent from February 2009; default notices were up 3 percent from the previous month, but down 3 percent from February 2009, and scheduled foreclosure auctions were down 1 percent from the previous month, but still up 16 percent from February 2009, RealtyTrac said.

High unemployment and wage cuts have hurt the ability of many home owners to pay monthly mortgage payments. Unemployment was at 9.7 percent in February, according to the Labor Department.

Many lawmakers, advocacy groups and housing experts say the government's Home Affordable Modification Program, or HAMP, has fallen short because of its failure to adequately address negative equity or under water mortgages.

Negative equity has been one of the biggest banes of many home owners' lives, making many unqualified for home loan refinancing and preventing some from selling their homes. Borrowers in negative equity are more prone to defaults and foreclosures.

SUNBELT STILL HURTING

The foreclosure rate in Nevada, once one of the hottest U.S. real estate markets, remained highest among U.S. states for the 38th straight month -- despite a month-over-month drop in foreclosure activity of nearly 7 percent and a year-over-year fall of 30 percent.

One in every 102 Nevada housing units received a foreclosure filing during the month of February -- more than four times the national average.

Arizona and Florida documented nearly identical foreclosure rates, with one in every 163 housing units receiving a foreclosure filing in both states in February.

Despite a nearly 21 percent drop in foreclosure activity from the previous month, Arizona's rate was statistically slightly higher than Florida's rate, and ranked second highest among the states. Foreclosure activity in Florida increased nearly 15 percent in February from January.

The foreclosure rate in California, the most populous U.S. state, ranked fourth highest among the states, with one in every 195 housing units receiving a foreclosure filing during the month.

Michigan's foreclosure rate ranked fifth highest among the states, with one in every 226 housing units receiving a foreclosure filing in February.

Other states with February foreclosure rates among the nation's top 10 were Utah, Idaho, Illinois, Georgia and Maryland, the report showed.

(Reporting by Julie Haviv; Editing by Jan Paschal)

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