Healing Labor Market Improves the National Foreclosure Picture
By Susanna Kim | August 25, 2016
Foreclosure starts – the first part of the process that can lead to a consumer losing their home – are at their lowest level since 2000, according to Black Knight Financial Services.
There were 77,657 foreclosure starts in the second quarter of this year, 25 percent fewer than the second quarter of last year, Black Knight reports.
A number of economic factors are responsible for the drop in foreclosures, but the main reason is the jobs market, says Orawin Velz, an economist at Fannie Mae.
Velz says one of the most common reasons people fall behind on mortgage payments is unemployment.
“If you lose your job, it doesn’t take much to stop paying your mortgage,” she says. Trigger events like an illness can also factor in.
During the last recession, there was an increase in the unemployment rate, which contributed to rising foreclosures, she says.
“Now, we’re in the opposite stage,” she says. “The labor market has been healing, and the unemployment rate has been declining.”
Stronger Jobs Market
The national unemployment rate was 4.9 percent in July, the Labor Department says, compared to its recession peak of 10 percent in October 2009.
A chart showing foreclosure starts and the unemployment rate from 1995 to the present shows a “very close correlation” in their movements, Velz says.
While the foreclosure picture is improving nationally, some states – such as Alaska, Wyoming, and North Dakota – have seen an increase in foreclosure rates in the past six months. Black Knight points to “oil and gas woes” weakening mortgage performance. Oil prices have recently hovered near $48 a barrel – far below their June 2014 peak of around $115.
The national drop in foreclosure starts in Black Knight’s second quarter data is in line with other sources studying mortgages.
The Mortgage Bankers Association (MBA) also reported that first-quarter foreclosure starts were the lowest since 2000. Lenders started foreclosure actions on 0.35 percent of loans – a drop of 10 basis points from a year earlier.
Meanwhile, the percentage of loans in any part of the foreclosure process at the end of the first quarter was 1.74 percent. That was down 48 basis points from a year earlier and the lowest since the third quarter of 2007.
More than half of all foreclosure starts are coming from mortgages that have been in active foreclosure at least once before. And nearly 60 percent of new serious delinquencies are from pre-2008 vintage loans, says Ben Graboske, data and analytics executive vice president at Black Knight.
“What we’re seeing with regard to new foreclosure starts – and the bulk of all new troubled loans, in fact – is that they’re largely still a remnant of the crisis,” Graboske says.
Graboske adds that recent trends reflect ongoing efforts by servicers to resolve delinquencies through loss mitigation – including retention options like loan modifications and liquidation options like short sales and deeds-in-lieu.
Velz adds that tighter lending standards may also be contributing to the drop in foreclosures and delinquencies.
The delinquency rate for mortgages on one- to four-unit residential properties was a seasonally adjusted 4.77 percent of all loans outstanding at the end of the first quarter, according to the MBA. That was the lowest level since the third quarter of 2006. In compiling its delinquency data, MBA includes loans that are at least one payment past due but not loans in the process of foreclosure.
(Editor’s note: This story first appeared in The Home Story, also a Fannie Mae publication.)