Serious Delinquencies Rebound in Top 100 Metro Areas

New findings show persisting foreclosure problems in the nation’s 100 largest metro areas are deteriorating for the first time in over six quarters.

The total number of loans in foreclosure or delinquent 90 days or more increased from 9.2% in June 2011 to 9.7% in December 2011 after declines that persisted since June 2011, according to Foreclosure-Response.org, a joint project of the Local Initiatives Support Corp., the Urban Institute and Center for Housing Policy.

The number of serious mortgage delinquencies in the metropolitan U.S. is climbing back from the June 2011 lows showing new signs of destabilization. “It remains to be seen whether the rate will stabilize or return to its December 2009 peak of 10.5%,” analysts wrote.

The overall rebound in the serious delinquency rate, which includes both foreclosures and delinquencies of 90 days or more, “reflects a steady increase” in the foreclosure rate over the past three years.

The December 2011 foreclosure rate reached 5.9% for the 100 largest metropolitan areas. Meanwhile, the 90-plus-day delinquency rate has leveled off. It remained relatively flat at 3.8% and roughly where it has been for the past four quarters.

Data show the average rate for all 366 metro areas has been following that same pattern mainly due to “a buildup of foreclosed homes,” especially in states with a judicial foreclosure process.

The average foreclosure rate in metros in judicial foreclosure states was at 7.2% in December 2011, compared to 4.7% in metros in states without a judicial foreclosure process.

The report states that following expectations foreclosure rates in judicial areas have increased every quarter since March 2009, when Foreclosure-Response.org began tracking the data, while foreclosure rates in nonjudicial metros have remained roughly flat for the last five quarters.

Up to 46 of the 100 largest U.S. metro areas are located in states with a judicial foreclosure process where the foreclosure backlog is mounting. Most problem metro areas are in New York, the state with the longest average foreclosure process, followed by Florida and Ohio.

In Florida—a state that both has a judicial foreclosure process and was hit extremely hard by the foreclosure crisis—the foreclosure rate has grown at a much faster pace. The national foreclosure rate in the top 100 metros grew by 1.8 percentage points during the March 2009 to December 2011 period. Over the same period foreclosure rates increased by over 5 percentage points in Miami, Orlando and Jacksonville.

Center for Housing Policy senior research associate, Maya Brennan, warns that the source of the problem is not in legislation as much as it is in “inadequate judicial resources applied to resolve the backlog of foreclosures on the docket.” Devoting more judicial resources to processing the high volume of foreclosures would help ensure due process without burdening anyone, she said.

Florida is one example where statewide the average property is in the foreclosure process for over 800 days. To address the issue this year the state has rehired retired judges who will help manage the caseload of backlogged foreclosures.

Analysts note, however, that being in a nonjudicial state does not guarantee a low rate of foreclosures and over 90-day delinquencies. Data show a number of problematic metro areas, such as Memphis, Las Vegas and several cities in California’s Central Valley, also have high levels of serious delinquencies, “perhaps reflecting continued economic challenges as well as temporary foreclosure delays.” Rob Pitingolo, a research assistant at the Urban Institute and author of the study, argues that while issues differ, the challenge is equally strong in all states.

If in judicial review states the foreclosure backlog has been “far too great for the courts” to process without additional staffing, he argued, what is gained by a faster process in nonjudicial review states can be lost due to higher fraud risk. “To protect homeowners and return stability to the market all states need to find a way to process foreclosures that balances expediency with fairness.”

In addition, switching to nonjudicial processes is an option that could limit safeguards for borrowers and reduce opportunities to use nonforeclosure solutions through mediation.