Black Knight Financial Services’ latest mortgage monitor shows that recent REO sales are grossing a higher recovery of unpaid balances, and that increasing home prices are the driver.
The December report looks at how different liquidation methods for properties facing foreclosure could affect how much of the properties’ gross unpaid balances could be recovered by lenders. According to Trey Barnes, Black Knight’s senior vice president of Loan Data Products, gross REO sales prices over the past two years have made up a higher percentage of corresponding unpaid loan balances due to increasing home prices nationwide.
“Black Knight’s Resolution Module combines the industry’s largest loan-level and property records databases to identify millions of involuntary liquidations, allowing our clients to accurately benchmark, calculate and model future losses on underperforming mortgages,” said Barnes. “The most recent data shows that since Q4 2012, lenders have been recovering greater gross percentages of UPB through REO liquidations than through short sales; reversing a trend that held true throughout the housing market’s crisis years. Of course, REO sales have additional timelines and associated costs that impact total losses and are not accounted for in this analysis. That said, on average, REO properties are selling for 71% of the corresponding loans’ defaulted UPB, as compared to just 65% for short sales.”
Both recovery rates pale in comparison to third-party sales at foreclosure auction, however, where average gross sales price is 116% of UPB.
“We also saw clear separation in terms of gross UPB recovery by investor groups. REO sales on GSE loans gross a significantly higher percentage of UPB than do FHA and private/portfolio loans. GSE loans are currently averaging 75% gross UPB recovery through REO, whereas FHA loans see just 65%,” he said. “Portfolio and private loans land in the middle, with gross recovery of 70% of UPB. In addition, REO timelines on GSE loans are shorter than both FHA and private/portfolio, averaging just 11.5 months to complete liquidation. Given the additional carrying costs lenders face while holding REO properties, the longer timelines associated with FHA and private/portfolio loans can add up.”
Black Knight also reported that December’s nearly 25% increase in the monthly prepayment rate (historically a good indicator of refinance activity) was most pronounced among loans with credit scores of 720 and higher, portfolio-held loans and those in recent vintages. The higher credit score group saw a nearly 30% month- over-month increase in prepayments, and portfolio loans increased over 42%.
While 2011-2013 vintage loans saw roughly 30% increases in prepayment activity, prepayments on the 2014 vintage were up nearly 38%.
Finally, Black Knight found that of the roughly 675,000 loans that became 30 days past due in November, just over half (53%) reverted back to current status in December. An additional 32% remained 30 days delinquent, while 13% rolled into 60-day delinquency. To put this breakdown in context, over the past few months preceding December, between 47-48% of new 30-day delinquencies have been curing to current; between 34-35% have remained in the 30-day bucket; and between 15-17% have rolled into 60-day delinquency. Figures for December 2013 were 46, 35 and 18%, respectively, showing that December 2014 easily outpaced recent, as well as year-over- year figures.