The latest mortgage monitor from Black Knight Financial Services shows that both first-time and repeat foreclosure starts reached 12-month highs, although there was clear separation in the levels of increase between the two.
Separation also continues to be seen between judicial and non-judicial foreclosure states across multiple performance indicators,” according to Trey Barnes, Black Knight’s senior vice president of Loan Data Products. ?
“Overall foreclosure starts hit a 12-month high in January, and that held true when looking at both first-time and repeat foreclosure starts individually,” Barnes said. “Repeat foreclosure starts made up 51% of all foreclosure starts and increased 11% from December. In contrast, first-time foreclosure starts were up just a fraction of a% from the month prior.”
Black Knight found that January foreclosure starts jumped about 10% from December in judicial states as compared to just a 1.7% increase in non-judicial states. Judicial states are also seeing higher levels of both new problem loans and serious delinquencies (loans 90 or more days delinquent, but not yet in foreclosure) than non-judicial states, although volumes are down overall in both categories.
“At the same time, foreclosure sale counts – essentially, completed foreclosures – have been decreasing more rapidly than the inventory of seriously delinquent loans in both judicial and non-judicial states,” he said.
As a result, foreclosure pipeline ratios, the backlog in months of foreclosure and 90-day delinquent inventory based on current foreclosure sale rates, have been increasing across the board. In judicial states, the pipeline ratio now stands at 58 months; up quite a bit from the 47 months seen in 2013, but a far cry from its high of 118 months a couple of years before that.
In recent months, non-judicial pipeline ratios have reached similar levels to judicial pipeline ratios.
As of January, the non-judicial pipeline ratio was at 53 months, close to an all-time high. Throughout the housing crisis, non-judicial pipeline ratios were significantly lower than those in judicial states.
Additionally, the data showed the impact of anti dual-tracking legislation on the foreclosure process. After legislation went into effect prohibiting the simultaneous pursuit of loan modification efforts and foreclosure processes, the average months delinquent for first time foreclosure starts shot up from 6.5 months to 14.6 months, and, as mandated, foreclosure starts on loans less than 120 days delinquent were virtually nonexistent in 2014.
“It is important to note that, as servicers have adapted to the new requirements, the effect on foreclosure start timelines has become less pronounced. As of January 2015, first-time foreclosure starts were occurring at an average of 9.1 months delinquent,” Barnes said.
Black Knight also revisited the subject of home affordability (calculated as the ratio of a fixed-rate mortgage payment on the median home price to the median monthly household income) and found that – despite two years of home price increases at the national level – affordability is better now than it was in the years prior to the housing bubble due primarily to the current low interest rate environment.
Nationally, the payment-to-income ratio now stands at 21%, as compared to an average of 26% during the 2000-2002 period just prior to drastically increasing home prices. This is up from the 17.6% ratio seen at the trough in October 2012, but down significantly from the July 2006 high of 34.7%.
At the national level, home prices could rise another 25%, or interest rates could jump almost 2%, before the affordability ratio would reach pre-bubble levels. Of course, the level of affordability varies by state, and some areas of the country – Washington D.C., Hawaii and Alaska – are actually less affordable now than in the pre- bubble years.
Overall, Washington, D.C., Hawaii and California are the least affordable areas of the country, while a one% increase in interest rates would push an additional seven states above 2000-2002 payment-to-income levels.