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Servicers Brace for Rise in Foreclosure Activity

According to Auction.com’s 2022 Seller Insights report, nine in 10 mortgage servicers disposing of distressed properties on the Auction.com platform expect their foreclosure auction volume to increase over the next 12 months. Seventy-four percent of these servicers said they expect a slight increase, while 15% of this share expect a substantial increase.

“Now that most pandemic-era foreclosure protections have expired or are winding down, it’s clear that the pro-active response to the pandemic by policymakers and mortgage servicers helped to avoid a feared foreclosure wave triggered by the crisis,” said Jason Allnutt, CEO of Auction.com. “While most in the default servicing industry expect to see foreclosures gradually increase over the next year, they are expecting a higher percentage of delinquent mortgages to avoid foreclosure than the historical average prior to the pandemic.”

According to the Consumer Financial Protection Bureau (CFPB), since the beginning of the pandemic, the number of borrowers behind on their mortgage increased to a level not seen since the height of the Great Recession in 2010.

Based on a survey of more than 50 Auction.com clients from mortgage servicers and government-sponsored entities (GSEs), the report also shows that a backlog of distressed mortgages from the pandemic is expected to have the most impact on distressed disposition volumes over the next 12 months, beating out regulatory intervention, a recession, home equity, and interest rates. Survey respondents forecast that the most likely foreclosure increases will be among government-insured mortgages and on properties located in the Midwest.

To help struggling borrowers remain in their homes during the pandemic, the government offered a series of protective measures to American borrowers. The Federal Housing Administration (FHA) issued Mortgagee Letter 2021-15, Freddie Mac issued Bulletin 2021-23, and Fannie Mae updated Lender Letter 2021-02, all of which extended foreclosure moratoria through July 31, 2021.

O n average, Auction.com clients expect 23% of their seriously delinquent (SDQ) inventory as of June 2022 to go to foreclosure auction in the following 12 months, although 20% of clients expect more than 30% of their SDQ inventory to roll into foreclosure auction sometime over the next year. The expected SDQ-to-foreclosure roll rate is below the historical average of 27%, which may be thanks to the high levels of home equity for properties securing delinquent mortgages. Auction.com clients surveyed estimated, on average, that 72% of its SDQ inventory had at least 10% equity as of June 2022.

Black Knight Inc.’s latest “first look” of its Mortgage Monitor Report for June 2022—which examines delinquency and foreclosure rates across the U.S.—found the national delinquency rate rose to 2.84% in June, ending a downward trend that has materialized over the last few months. The delinquency rate was 2.75% in May, 2.80% in April, and 2.84% in March. Looking specifically at foreclosure starts, this metric was up 26.6% in June on a monthly basis, but up 440.91% year-over-year. Starts also represented the highest share (4%) of serious delinquencies since March 2020, but less than half the rate in the years leading up to the pandemic.

Examining the first half of 2022, ATTOM’s Midyear 2022 U.S. Foreclosure Market Report found a total of 164,581 foreclosure filings (default notices, scheduled auctions, or bank repossessions) reported nationwide, up 153% year-over-year, but down just 1% from the same time period two years ago.

"Foreclosure activity across the United States continued its slow, steady climb back to pre-pandemic levels in the first half of 2022," said Rick Sharga, EVP of Market Intelligence at ATTOM. "While overall foreclosure activity is still running significantly below historic averages, the dramatic increase in foreclosure starts suggests that we may be back to normal levels by sometime in early 2023."

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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