Foreclosure starts among private-label residential mortgage-backed securities (RMBS) have been rising toward historic averages over the past six months, which will lead to an influx of distressed properties bringing downward pressure to the housing market, according to recent RMBS Performance Metrics from Fitch Ratings.[IMAGE]
According to Fitch, foreclosure start rates for severely delinquent RMBS loans have stayed above 10 percent since September -- a rate they have not reached since November 2009 -- and have been working their way toward their 14 percent average between 2000 and 2010.
""Rising foreclosure start rates are likely a sign that servicers are playing catch-up on actions that have been delayed over the past year,"" states Diane Pendley, managing director of Fitch Ratings.[COLUMN_BREAK]
In fact, the rise in foreclosure starts has occurred most heavily among severely delinquent loans. Foreclosure starts among loans that have been delinquent for six months or more have almost doubled in the past five months.
In contrast, foreclosure starts among loans three months to six months delinquent have increased by 25 percent over the past five months.
The foreclosure process is averaging about eight months in non-judicial states and 15 months in judicial states, according to Fitch.
Despite foreclosure starts being on the rise, foreclosure completions in judicial states hover near their historic lows. Fitch attributes this to ""servicers' continued loss mitigation efforts, a backlog in court foreclosure filings, and weak demand in the housing market.""
About a year after deficiencies in the foreclosure process were brought to light, Pendley says, ""Mortgage servicers now generally feel they have implemented the corrective actions that they determined were needed.""
""With corrective actions now in place, servicers now need to process a significant backlog of problem loans as well as implement other process changes in parallel,"" she continues.
The effects of rising foreclosure starts as servicers work their way through the backlog of distressed loans may not be evident for more than a year, according to Fitch.