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Predicting the probability of a future foreclosure may be as simple as evaluating how high a loan-to-value ratio is on the original home loan, according to a new study from analytics firm Pro Teck Valuation Services.
The company surveyed 5,000 properties in three zip codes in New York, New Jersey and Connecticut. The likelihood of foreclosure generally peaks during the second or third year of a property landing in a negative equity state, the company said.
The study says an example would be a property with an LTV score of 150% and a shelf life of at least 10 quarters in an upside-down state that has a foreclosure rate of 22%.
"Those with the highest LTV of two reach their peak foreclosure rate of a little over 40% in the third year or in quarter 10; the other two lower LTV categories reach their peak foreclosure rates in year two or quarter six," Pro Teck wrote.
If negative equity is a key driver of mortgage defaults, then Pro Teck said there is a benefit to home prices edging up over the past several months. "Perhaps those borrowers with substantial negative equity can see a brighter day with higher prices on the horizon and, if right, postponing default and foreclosure for a little longer may be prudent," the research firm concluded.
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