Distressed mortgages dating back to the height of the pandemic are expected to fuel a jump in foreclosure activity over the next 12 months, although the foreclosure rate is still expected to remain below the pre-pandemic historical average, a new report from Auction.com contends.
The prediction by one of the nation’s leading marketplaces for distressed assets, is based on a survey of some 50 Auction.com clients, including private-sector mortgage servicers and government-sponsored enterprises (GSEs). The survey, called the Seller Insights report, shows that nine in 10 mortgage servicers expect their foreclosure volume to increase over the next 12 months — with 74% anticipating a “slight increase,” and 15% projecting a “substantial increase.”
The survey queried Auction.com clients about their expectations for outcomes of seriously delinquent (SDQ) mortgages — many of which have lost the protections of forbearance programs enacted early on during the COVID-19 pandemic. That loss of forbearance protection is expected to be the primary driver of future foreclosures — ahead of interest rate increases, regulatory factors, a recession or home-equity woes.
“Now that most pandemic-era foreclosure protections have expired or are winding down, it’s clear that the pro-active response to the pandemic by policymakers and mortgage servicers helped to avoid a feared foreclosure wave triggered by the crisis,” said Jason Allnutt, CEO of Auction.com. “While most in the default servicing industry expect to see foreclosures gradually increase over the next year, they are expecting a higher percentage of delinquent mortgages to avoid foreclosure than the historical average prior to the pandemic.”
For Auction.com clients, per the survey, some 23% expect their SDQ inventory as of June 2022 “to go to foreclosure auction in the following 12 months,” Auction.com reports. Some 20% of clients, however, expect more than 30% of their SDQ inventory to wind up in foreclosure over the next 12 months.
“The expected SDQ-to-foreclosure roll rate [23%] is below the historical average of 27 percent, which may be thanks to the high levels of home equity for properties securing delinquent mortgages,” Auction.com states in its announcement of the Seller Insights survey results. “Auction.com clients surveyed estimated, on average, that 72 percent of their SDQ inventory had at least 10 percent equity as of June 2022.”
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The most likely foreclosure increases will be among government-insured mortgages and on properties located in the Midwest, according to survey respondents.