Foreclosures Down: What's the Future Hold?

Mortgages are faring well according to recent figures from several sources. Not only are national foreclosure rates at their lowest in 15 years, but some encouraging underlying economic figures indicate that these trends could continue. There are seasonal factors, however, that could impact delinquencies in the short-term.


Foreclosures Down - What the Experts Say

Total mortgage delinquency rates on all loans dropped to 3.64 percent in May, a decrease of 0.84 percent from the prior month and 4.08 percent better than the same period last year. This is according to the latest Black Knight's First Look report.

By the end of May, roughly 1.86 million properties were listed as being 30 days or more past due, but not in foreclosure. This was a drop of 18,000 from April and over 60,000 from the prior year. May marked the fifth consecutive month with declining delinquency figures.

The Q1 OCC Mortgage Metrics Report was also just released by the Office of the Comptroller of the Currency (OCC). The report reveals data on first-lien residential mortgages from seven national banks. While foreclosures were up in 8.1 percent from Q4 2017, they had dropped 21.5 percent year over year. Also, home forfeiture actions in Q1 (short sales, foreclosure sales, deed in lieu of foreclosure actions) were down 32.5 percent year over year.

According to figures released so far this year from a variety of sources, the national foreclosure rate is now at its lowest rate in over a decade. At the current rate of decline, the level of national foreclosures could reach pre-recession levels by early Q3 2018.

Will the Positive Trend Continue?

CoreLogic also reports on national mortgage delinquency rates monthly. The firm looks at all the stages of home delinquencies, noting the transition rates between each stage as a way to measure trends. According to them, the rates for early-stage (30-59 days past due) and mid-stage (60-89 days past due) were unchanged in March 2018 year over year. The serious delinquency rate (90 days or more past due) was down 2.1 percent year over year.

These are all signs that the positive trend can continue. Since unemployment is down and home equity rates are up, there is less risk of borrowers defaulting on mortgages. The highest risk factor the market is currently facing is seasonal. Specifically, the wildfires and hurricanes that risk destroying homes across the country also severely impact mortgage default rates.


Loan Portfolio Sales to Manage Risk

Even during periods of economic prosperity, tragedy can strike. A hurricane can make its way up the coast or wildfires can destroy an entire community. Low unemployment rates can quickly reverse in response to an unexpected tariff, and those low delinquency rates might begin to climb.

Lenders can manage loan portfolio risk and maximize potential returns by partnering with an asset management company. Selling mortgages that are lower performing and buying loans in different asset classes can help your bank accomplish its financial goals.