Home prices have risen over the past two years and many distressed loans have worked their way through the system, the percentage of Americans in negative equity positions on their mortgage has declined considerably, Black Knight Financial Services’ Mortgage Monitor for March shows.
Meanwhile, those loans already in the foreclosure process have been aging substantially.
According to Kostya Gradushy, Black Knight’s manager of Loan Data and Customer Analytics, both data trends point to a healthier housing market.
“Two years of relatively consecutive home price increases and a general decline in the number of distressed loans have contributed to a decreasing number of underwater borrowers,” said Gradushy. “Looking at current combined loan-to-value, we see that while four years ago 34% of borrowers were in negative equity positions, today that number has dropped to just about 10% of active mortgage loans.”
While negative equity levels have declined for both judicial vs. non-judicial foreclosure states from the peak of the crisis, non-judicial states are now at just under 8%, as compared to 13.4% in their judicial counterparts. Overall, nearly half of all borrowers today are both in positive equity positions and of strong credit quality – credit scores of 700 or above.
Four years ago, that category of borrowers represented over a third of active mortgages.
“Black Knight has also observed the timelines associated with loans in foreclosure continuing to expand over time, reaching an average of 966 days delinquent for those in the foreclosure process. In fact, 55% of all loans in foreclosure are now more than two years delinquent -- an all-time high,” Gradushy said. “The average length of delinquency for completed foreclosures is quite comparable at 955 days. However, as a share of total aged inventory, fewer of these loans are completing the foreclosure process. While it may seem counterintuitive, this is actually also indicative of an improving market. As there are fewer new foreclosure starts, not as many new problem loans, declining delinquencies and improving indicators all around, what’s left are these loans lingering -- for years -- in the foreclosure pipeline.”
Black Knight also found home affordability better now than it was in the years prior to the housing crisis, though the level of affordability varies by state. At the national level, the mortgage-to-income ratio now stands at 22%, whereas in 2006, only four states were below this level.
As of March, nearly two-thirds of the country fell below this line: Michigan, Missouri, Indiana and Iowa were the most affordable states, whereas New York and California were the least affordable.
As was reported in Black Knight’s most recent First Look release, other key results include:
- Negative equity levels in the country keep falling – they've declined over 60% since their peak – and as of March, just 1 in 10 American borrowers are underwater on their mortgages. That's down from about 1 out of every 3 back in 2010.
- Home affordability is better today than it was even before the bubble. At the national level, 22% of income goes to paying the mortgage.
- Loans in the foreclosure process have now been past due for an average of 966 days, and a full 55% of those loans haven't had a payment made in over 2 years. Both of these numbers represent all time highs
- Jumbo mortgages are more popular these days. As 2013 drew to a close, jumbos accounted for roughly 9% of all mortgages, with an average credit score of 765 compared to 750 for non-jumbo loans.