Magazine article Mortgage Banking

A Gray Cloud for the Silver Lining?

Magazine article Mortgage Banking

A Gray Cloud for the Silver Lining?

Article excerpt

In our recent columns, we have concentrated primarily on the rates of new problem loans in the mortgage market. The improving picture there has provided a silver lining for the gray cloud that is the unprecedented volume of troubled assets, which continue to sit in the pipeline.

While new problem-loan rates continue to show signs of improvement, moratoria, loss-mitigation efforts and foreclosure process reviews have led to increasing pressure on distressed inventories.

Foreclosures hit another all-time high in January at approximately 2.2 million loans, and there are an additional 2.2 million that are 90 or more days delinquent behind that.

The outward flow of loans through foreclosure sale and other involuntary liquidation has been greatly reduced as servicers continue to explore home-retention options and, more recently, perform additional documentation reviews, generally exercising an abundance of caution before proceeding to foreclosure sale.

Even with an increase in foreclosure-sale activity during the month of January, the three months from November to January averaged only about 70,000 liquidations per month vs. 110,000 on average for the six months prior to that. Compare that figure with foreclosure starts, which have averaged about 250,000 over the same period, and it becomes readily apparent that despite improvements, the industry is still losing ground.

While loan modifications continue to be a factor curing some loans, reduced foreclosure-sale activity has primarily led to a much larger and more aged inventory.

Almost 30 percent of the loans in foreclosure are more than two years past due and the average number of days delinquent for loans in foreclosure has more than doubled--from 250 in January 2008 to more than 520 in January 2011.

That figure has increased in every single month over the last three years, and while the absolute numbers vary by geography (with New York and Florida being the longest at more than 600 days each), the timeline extensions have almost universally impacted all areas of the country.

Unfortunately, despite significant home-retention efforts over the last several years, options are diminishing for the 4.4 million borrowers who fall into the 90-days-delinquent or in-foreclosure category. In particular, the 2.2 million borrowers in the foreclosure process are more unlikely than ever to find a resolution through cure.

Once a loan is in foreclosure, it is much less likely to be cured, through modification or otherwise, versus a loan of the same delinquency status that is not in foreclosure. …

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