Had the proposed rules defining Qualified Residential Mortgages (QRM), the loans that would be exempt from the retained risk requirements of the Dodd-Frank Act, been in effect, they would have affected nearly half of all residential loans originated in the U.S. since 2005.  This conclusion comes from the June Mortgage Monitor report released Thursday by Lender Processing Services (LPS), Inc. 

The report, however, determined that the anticipated expiration of temporary limits for conforming loans will have little impact on originations.  The volume of loans that fell within the expanded limits - which currently range up to $729,750 in some high value areas, accounted for only one percent of originations over the last three years.  The report concludes that returning the entire nation to the $417,000 loan cap as is scheduled to occur in October will have "minimal" impact. 

What that data does not take into account is that the impact of shrinking loan limits will not be uniform. While the majority of the nation may not even notice, there are some major metropolitan areas where, when the extended limits go away, the housing market may go away as well.  In cities such as New York, Washington, DC, Boston, and San Francisco, homes costing more than $500,000 still constitute a major part of the housing stock.  Private money is slowly coming back into the jumbo market, but suddenly cutting off the federal tap is bound to have repercussions in these pricier areas.

The body of the Mortgage Monitor report deals with foreclosures, and LPS reports that June foreclosure starts increased by more than 10 percent over May to a total of 217,486 and delinquencies were up by 2.4 percent to an 8.15 percent level.  While delinquencies and foreclosure starts declined year-over-year (by 14.7 percent and 3.7 percent respectively) foreclosures were up 14.7 percent.  Pre-foreclosure sales rose 0.2 percent from May to 4.12 percent.  At the end of June 4.1 million loans were either 90+ days delinquent or in foreclosure, representing a 12.8 percent increase since June 2010.

A big reason that the last number continues to expand is the continuing increase in the time loans languish in delinquent status.  The average loan is now delinquent for 587 days before it is foreclosed nearly double the 251 day average in January 2008.  LPS reports that in June 35 percent of the loans in foreclosure had not made a mortgage payment in over two years.  The percentage of loans in this category has increased virtually every month since April of 2009 while the percentage of loans in every other time category has shrunk.

The timeline increases are considerably higher in judicial foreclosure states.  The average days from delinquency to foreclosure start is 314 in non-judicial and 333 in judicial states.  A loan spends 488 days in foreclosure inventory in non-judicial states, 646 days in judicial and the days to foreclosure sale average 551 and 728 respectively.  

Looking at the differences between judicial and non-judicial foreclosure states, the LPS data shows that the foreclosure pipeline ratio - that is, the number of loans either 90+ days delinquent or in foreclosure divided by the six-month average of foreclosure sales - is more than three times as high for judicial foreclosure states. Additionally, the slowdown associated with foreclosure moratoria has been almost exclusively felt in judicial states.

The LPS report Mortgage Monitor Report is issued monthly and based on mortgage data and performance information on almost 40 million loans.