The Lender Processing Services (LPS)
Mortgage Monitor for January which was released on Thursday takes a detailed
look at what it calls the "Time to Clear" default backlog and what might be
termed the unintended consequences of legislative or judicial action in a few
states. The report shows the now
well-known divergence in the foreclosure pipelines of states that use judicial
and non-judicial foreclosure processes but, as its Senior Vice President Herb
Blecher says, even this now-familiar judicial/non-judicial dichotomy is not as
clearly defined as it once was.
While the overall trend of foreclosure
activity has heading downward for months, January had one of the frequent upward
blips. There were a total of 148,000
foreclosure starts in January, an increase of 8.3 percent from December, and
66,000 foreclosure starts, up 14.7 percent from the previous month.
Foreclosure inventories have been
declining slowly since 2009 and the national inventory or pipeline now stands
at 3.41 percent. The inventory in
judicial process states is 5.69 percent, nearly three times that of
non-judicial states where the percentage of homes in some stage of foreclosure
is 1.79 percent. Further, the percent of
loans in the pipeline that have been delinquent in excess of two years is 58
percent in judicial states as opposed to 33 percent in non-judicial states.
The Monitor points to two non-judicial
states where pipelines have increased dramatically in recent months due in
Nevada to legislative action and to the results of a court decision in
Massachusetts. The extent of the Massachusetts
shift, apparently because of a requirement that the lender must now prove
ownership of the loan it is foreclosing, raises questions about the
circumstances surrounding foreclosures prior to Eaton V FNMA. The
Monitor asks, given the results in these two states, about the potential impact
of the new Home Owners' Bill of Rights recently enacted in California.
Blecher said, "On average, pipeline ratios -- the rate at which states are
currently working through their existing backlog of loans either in foreclosure
or serious delinquency -- are almost twice as high in judicial states than
non-judicial states. At today's rate of foreclosure sales, it will take 62
months to clear the inventory in judicial states as compared to 32 months in
non-judicial states. A few judicial states -- New York and New Jersey in
particular -- have such extreme backlogs that their problem-loan pipelines
would take decades to clear if nothing were to change.
"More recently, certain non-judicial states, such as Massachusetts and
Nevada, have enacted 'judicial-like' legislative and/or legal actions which
have greatly extended their pipeline ratios. Nevada's 'time to clear' has
extended from 27 months in January 2012 to 57 months as of January 2013. The
change in Massachusetts has been even more pronounced. Since June of last year,
its pipeline ratio has gone from 75 to 171 months."
The total U.S. delinquency rate in
January was 7.03, down 2.03 percent from December. The January data also showed that, despite an
overall national trend of improvement, new problem loan rates remain high in
states with large numbers of "underwater" borrowers. So-called
"sand states," such as Nevada, Florida and Arizona, are still seeing
high levels of negative equity (45, 36 and 24 percent of borrowers are
underwater, respectively), and each of those states is experiencing
higher-than-average levels of new problem loans. Additionally -- and further
underscoring the differences seen between judicial and non-judicial states --
new problem loan rates in non-judicial states declined slightly over the last
six months, while increasing almost 20 percent in judicial states.
LPS reported, based on December data,
that loan originations remained elevated but did not move as significantly as
might have been expected with the continued declines in interest rates. Credit characteristics for recent vintages
of loans are what it called "pristine" with low default rates and have lower
risk with higher margins.
Refinancing through the Home Affordable
Refinance Program (HARP) continues strong, representing almost a quarter of all
originations and about 30 percent of originations done through Freddie Mac and
Despite the high loan-to-value ratios of
HARP loans the default rates remain low compared to FHA and other high ratio
loans although LPS is extrapolating this conclusion from high LTV loans by the
government sponsored enterprises (GSEs) that it presumes to be HARP loans.
says as many as 20 percent of outstanding mortgages - or approximately 2.6
million - have refinancable characteristics and could benefit from refinancing through
HARP or some other program.