The January Lender Processing Services Monitor report shows frequent moves in and out of loan delinquency and foreclosure traffic is one of the reasons why apparent improvements in the nation’s distressed mortgage market are relative, if not meaningless, when seen as part of the overall picture.
LPS reports that repeat foreclosures or loans that had cured in one way or another but have fallen back into foreclosure now account for over 35% of foreclosure starts.
It means the fact that foreclosure starts decreased 11.4% in the first month of 2011 compared to December and 20.1% annually does not call for rejoicing even though the good news is that there is some stability in the number of those who are adding up to the existing number of distressed borrowers. (Similarly, new seriously delinquent loan rates also improved as all states reported significant annual declines in new seriously delinquent loan inventory.)
The bad news is that despite government/private sector efforts to help keep these distressed borrowers in their homes the assistance given to many of those who repeatedly go into foreclosure may be futile and just postponing the inevitable.
Since ultimately foreclosure starts still outnumber foreclosure sales by almost three-to-one—plus it is equal to 25 times January 2011’s level of foreclosure sales—the current foreclosure inventory is poised for faster growth.
This trend appears to be consistent in the long term. In January the total U.S. foreclosure inventory rate was 4.16%. It increased 0.2% on a monthly basis and 7.9% compared to January 2010. By the end of January foreclosure inventories were at nearly eight times the historical average while delinquencies more than doubled historical norms.
At 8.9% the total U.S. loan delinquency rate increased 0.8% on a monthly basis but decreased 18.8% on an annual basis bringing the total U.S. noncurrent loan rate to 13.1%.
Whether the primary driver of loan performance change is borrowers’ unemployment, other financial distress, or foreclosure moratoria, what appears to be adding to that list is longer foreclosure timelines that consistently continue to extend.
LPS data show the average loan in foreclosure has not made a payment in over 500 days. It finds the foreclosure process “continues to drag out as the timelines for foreclosure starts, days in inventory and sales all continue to extend.”
It means that along with the increase in the number of serious delinquencies, or loans that were 90 days or more delinquent, the number of future foreclosure prospects is growing. According to LPS, a large number of loans were transitioned out of foreclosure back into the seriously delinquent category.
Data show deterioration in the seriously delinquent category “increased last month, for the first time since May 2010” marking overall growth with the largest increase in the over 12-month delinquent category as more loans were removed from foreclosure.
As of Jan. 31, 2011 over 2.2 million loans were 90 days or more delinquent but not yet in foreclosure bringing the total number of loans in some stage of delinquency or foreclosure to over 6.9 million.
Furthermore, refinance activity—which could help reverse the status of some delinquent loans into current—has declined significantly due to increasing rates and the fact that the market seems to have exhausted these opportunities during several months of strong refinance volume.
As to where the most problematic areas are, the story has not changed.
The state with the highest number of noncurrent loans, including foreclosures and delinquencies as a percent of active loans, is Florida, followed by Nevada, Mississippi, Georgia and New Jersey.