Striking Out Again and Again

Spring training has just started but thousands of homeowners are already striking out for the second time.

Black Knight reports that in January foreclosure starts reached at 12-month high. Repeat foreclosures were up 11 percent month-over-month and made up over half of January foreclosure starts; first-time starts were up just 0.33 percent.

The month’s data showed that both first-time and repeat foreclosure starts reached 12-month highs, although there was clear separation in the levels of increase between the two. According to Trey Barnes, Black Knight’s senior vice president of Loan Data Products, separation also continues to be seen between judicial and non-judicial foreclosure states across multiple performance indicators.

“Overall foreclosure starts hit a 12-month high in January, and that held true when looking at both first-time and repeat foreclosure starts individually,” said Barnes. “Repeat foreclosure starts made up 51 percent of all foreclosure starts and increased 11 percent from December. In contrast, first-time foreclosure starts were up just a fraction of a percent from the month prior. Similarly, Black Knight found that January foreclosure starts jumped about 10 percent from December in judicial states as compared to just a 1.7 percent increase in non-judicial states. Judicial states are also seeing higher levels of both new problem loans and serious delinquencies (loans 90 or more days delinquent, but not yet in foreclosure) than non-judicial states, although volumes are down overall in both categories.

One again the action is mostly in the judicial states.  Foreclosure starts were up almost 10 percent month-over-month in judicial states vs. just 1.7 percent in non-judicial.  “At the same time, foreclosure sale counts – essentially, completed foreclosures – have been decreasing more rapidly than the inventory of seriously delinquent loans in both judicial and non-judicial states. As a result, foreclosure pipeline ratios, the backlog in months of foreclosure and 90-day delinquent inventory based on current foreclosure sale rates, have been increasing across the board. In judicial states, the pipeline ratio now stands at 58 months; up quite a bit from the 47 months seen in 2013, but a far cry from its high of 118 months a couple of years before that. In recent months, non-judicial pipeline ratios have reached similar levels to judicial pipeline ratios. As of January, the non-judicial pipeline ratio was at 53 months, close to an all-time high. Throughout the housing crisis, non-judicial pipeline ratios were significantly lower than those in judicial states.”

Additionally, the data showed the impact of anti dual-tracking legislation on the foreclosure process. After legislation went into effect prohibiting the simultaneous pursuit of loan modification efforts and foreclosure processes, the average months delinquent for first time foreclosure starts shot up from 6.5 months to 14.6 months, and, as mandated, foreclosure starts on loans less than 120 days delinquent were virtually nonexistent in 2014. It is important to note that, as servicers have adapted to the new requirements, the effect on foreclosure start timelines has become less pronounced. As of January 2015, first-time foreclosure starts were occurring at an average of 9.1 months delinquent. Washington, D.C., Hawaii and California currently have least affordable housing nationwide

Black Knight also revisited the subject of home affordability (calculated as the ratio of a fixed-rate mortgage payment on the median home price to the median monthly household income) and found that – despite two years of home price increases at the national level – affordability is better now than it was in the years prior to the housing bubble due primarily to the current low interest rate environment. Nationally, the payment-to-income ratio now stands at 21 percent, as compared to an average of 26 percent during the 2000-2002 period just prior to drastically increasing home prices. This is up from the 17.6 percent ratio seen at the trough in October 2012, but down significantly from the July 2006 high of 34.7 percent. At the national level, home prices could rise another 25 percent, or interest rates could jump almost two percent, before the affordability ratio would reach pre-bubble levels. Of course, the level of affordability varies by state, and some areas of the country – Washington D.C., Hawaii and Alaska – are actually less affordable now than in the pre-bubble years. Overall, Washington, D.C., Hawaii and California are the least affordable areas of the country, while a one percent increase in interest rates would push an additional seven states above 2000-2002 payment-to-income levels.

As was reported in Black Knight’s most recent First Look release, other key results include:

Total U.S. loan delinquency rate:                               5.56%

Month-over-month change in delinquency rate:                   -1.41%

Total U.S. foreclosure pre-sale inventory rate:                    1.61%

Month-over-month change in foreclosure pre-sale inventory rate:               -0.20%

States with highest percentage of non-current* loans:                      MS, NJ, LA, NY, ME

States with the lowest percentage of non-current* loans:                MT, AK, SD, CO, ND

States with highest percentage of seriously delinquent** loans:                    MS, RI, LA, AL, ME

*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.

**Seriously delinquent loans are those past-due 90 days or more.

Totals are extrapolated based on Black Knight Financial Services’ loan-level database of mortgage assets.