Judicial Foreclosure Process Still in the Way as Delinquencies, Foreclosures Drop
The judicial states still lag behind a national trend that is keeping the foreclosure inventory to its lowest level since 2008, according to the Mortgage Bankers Association.
MBA’s National Delinquency Survey shows the delinquency rate for mortgage loans on one-to-four unit residential properties in the third quarter dropped to 6.41%. It dropped 55 basis points from the previous quarter and 99 bps from one year ago, to its lowest level since 2008.
The foreclosure inventory also dropped to 3.08%, down 25 bps from the second quarter and 99 bps year-over-year and remains at levels comparable to 2008.
Since the recession lenders have originated higher quality loans, exited the subprime loan market and are now preparing to comply with qualified mortgage requirements in 2014. These changes suggest the rate of delinquencies and foreclosures will continue to decline, said Jay Brinkmann, MBA’s chief economist, during a press conference.
Legacy loans originated during the early years of the crisis and long foreclosure processing issues remain the biggest challenge to a full recovery.
“About 77% of the seriously delinquent loans that are still out there were originated in 2007 and earlier, which is down from the magnitude we had before,” but still a challenge, he says.
Third-quarter data show significant progress is being made in clearing the seriously delinquent loan backlog particularly in states like Florida, which is trying to clear out some of this backlog, Brinkmann said, but they still dominate the distressed loan market.
“This is atypical for a normal credit cycle,” he added, “by this point one would expect loans originated that long ago to have been well passed their peak problem period.”
However, the effect of better performing new originations, the fact that “as the loans get older, even the 2008 loans perform better,” and improved results reported in previous quarters indicate, suggest the market is in the right track, he added
The degree to which the mortgage delinquency and foreclosure problem has changed over the past five years is best illustrated by some of the nation’s worst performing markets.
The top three states with the highest rate of loans 90 days or more past due or in foreclosure are Florida, New Jersey and New York, but their stories are quite different.
Florida’s foreclosure rate still is the highest in the country. However, during the quarter it dropped 1 percentage point and has shown “a significant drop in a year-over-year and quarter-over-quarter basis,” he said, while by contrast, the rate in up in New Jersey and New York making them the only two states in the country that saw an increase in foreclosures.
“While there’s room for speculation as to why,” a glance at what is keeping the numbers up in these states and other states where the foreclosure rate is higher than the national average, he explained, is state regulation. “The only states above that average that have nonjudicial foreclosure systems are Rhode Island and Nevada, so it’s the judicial foreclosure system, which tends to slow things up.”
Data once again show the big difference between the foreclosure inventory numbers in judicial and nonjudicial states.
In addition current data show the foreclosure start rate also is dominated by the states with judicial foreclosure systems, he said, as of the 18 states with rates above the national average, 13 have judicial systems. During the quarter the nonjudicial state average is 1.66% and for judicial states the rate is three times as high at 5.28% despite drops in some states including Illinois, Maryland and Connecticut “that typically have high percentages of loans in foreclosure.”