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Servicers to Watch Out for Seriously Delinquent Borrowers

Research findings throughout the recession show the financial vulnerability of delinquent consumers has worsened and is bound to push these borrowers into even more severe stages of delinquency.
The trend is shaped by economic and behavioral factors fueled by still-dropping house prices and high unemployment.

According to TransUnion, the number of consumers “rolling” their delinquency status on mortgage payments from 30 to 60 and 60 to 90 days past due peaked in July 2009.

A recent TransUnion study found that 24.4% of consumers who were 30 days past due on their mortgage payments in June 2009 became 60 days past due in July 2009. At the same time 37.6% of consumers 60 days delinquent on their mortgage payments became 90 days late.

It specifically examined roll rates for nondelinquent accounts that went 30 days past due, accounts moving from 30 to 60 days past due and those accounts going from 60 to 90 days past due. After analyzing information from a pool of data between March 2006 and December 2009, which is the period that encompassed the entire recession that began in December 2007 and ended in June 2009.

TransUnion reaffirmed industry findings that the all-time high overall foreclosure inventory will go further up, not down.

Lender Processing Services Inc., Jacksonville, Fla., reports that by the end of October 2010 the total U.S. foreclosure inventory rate reached 3.92%, which equals 7.4 times the historical averages and continues to rise despite an improvement in the monthly rate.

Even though in October only 263,000 loans entered the foreclosure process, declining 4.4% month-over-month, the total inventory of foreclosures is nearly 2.1 million loans, while another 2.2 million loans are seriously delinquent or over 90 days past due, but not yet in foreclosure status.

When including a loan delinquency rate of 9.29% the total U.S. noncurrent loan rate that combines foreclosures and delinquencies as a percent of active loans increases to 13.2%.

More than anything “the widespread moratoria” further extended the average number of days past delinquent for loans in the foreclosure process which now approaches 500 days.

Foreclosure activity changes include increases in the number of loans six to 12 months delinquent. However, as more of these loans are moving to foreclosure the number of loans that are extremely delinquent or over 12 months past due “continues to grow and age” but still are not in foreclosure.

LPS reports that currently a payment has not been made in more than one year on almost one-third of all loans that are 90 or more days delinquent. Another 18% are seriously delinquent loans also still not in foreclosure on which payments have not been made in two years.

TransUnion found an “interesting dynamic” in the early-stage roll rates in California.

Current 30-day roll rates in that state remained well below the national average in delinquency levels except from the roll rates from 30 days past due and onward which “were significantly worse in California than for the nation.”

For example, in December 2007, only 0.58% of current accounts rolled to 30 days past due in California while for the nation at large it was 0.79%; yet the state’s 30- to 60-day roll rate that same month was 27.15%, compared to the national average of 17.12%.

Serious mortgage delinquency in California is one of the highest in the nation and at nearly twice the national average and in line with analysts’ expectations.

So while Californians appear to be less likely to enter delinquency with their mortgages, “once they do they are more likely to fall into severe delinquency” due to disproportionately higher monthly mortgage payments relative to incomes given the fact that the recession has made it “far more difficult” for

California consumers to recover from delinquency, says FJ Guarrera, vice president of TransUnion’s financial services and one of the authors of this study. It implies that lenders need to work “more effectively with consumers” who need help to overcome financial hardship.

Delinquencies remain elevated in part due to new 60-day delinquencies.

LPS reports that redefaults on loans that had previously been 60 days or more delinquent and had become current are going up, while the number of newly delinquent or "first-time" troubled loans “remained relatively stable” during the last several months.

As expected, regional differences prevail. The highest delinquency rates are reported in Florida, Nevada, Mississippi, Georgia and Louisiana.

And it is not yet clear as to when these seriously delinquent loans will enter the foreclosure inventory.

The overall percentage of loans moving from the foreclosure process to bank-owned status “or other involuntary liquidation” dropped by 35% in October.

In addition, moratoria caused a dramatic decrease in foreclosure sales over the month of September, LPS said.