Legacy Loans Remain Problematic As Foreclosures Fall

The pipeline of U.S. homes in some stage of foreclosure continues to decline with approximately 470,000 homes classified as in some state of distress during the month of August, down 25.2 percent from August of 2014, according to CoreLogic’s latest National Foreclosure report.

By August of this year, the foreclosure inventory represented 1.2 of all homes with a mortgage, down from 1.6 percent a year earlier.

Even still, the report, which is largely positive, contains at least one nugget of data that deserves closer observation.

Frank Nothaft, CoreLogic’s chief economist, noted that legacy loans continue to face a higher rate of delinquencies, suggesting pools generated during periods with less intense underwriting continue to struggle. Meanwhile, newly originated loans–created under tighter guidelines–are largely outperforming in terms of delinquencies.

“Mortgage performance continues to improve, however there is a dichotomy between the performance of recently originated loans and legacy loans,” said Nothaft. “Newly delinquent loans are at the lowest rates during the last two decades. That reflects the tight underwriting and improved economy during the last few years. However, the foreclosure pipeline of legacy loans remains elevated. Over the last 12 months, there have been 500,000 completed foreclosures, more than double the number during normal periods.”

Nationally, CoreLogic reported 36,000 completed foreclosures in August, a drop from 46,000 a year earlier. The seriously delinquent rate now stands at 3.5 percent, which is the lowest level since January of 2008, CoreLogic added.

The states with the highest foreclosure inventory as a percentage of mortgaged homes, include New Jersey, New York, Florida, Hawaii and Washington, D.C. New Jersey topped the list with 4.6 percent of mortgage homes in foreclosure.

Meanwhile, the five states with the lowest foreclosure inventory as a percentage of mortgaged homes, includes Alaska, Minnesota, Arizona, Colorado and Nebraska. Alaska performed better than the rest with only 0.3 percent of mortgage homes in foreclosure.

Click here to view the full report.