With foreclosure starts being at their lowest level since 2000, The Home Story presented by Fannie Mae reports that the major drop in foreclosures can be tied to a number of economic factors, but the major reason is the jobs market.
Fannie Mae economist, Orawin Velz says one of the most common reasons people fall behind on mortgage payments is unemployment. During the last recession, there was an increase in the unemployment rate, which contributed to rising foreclosure rates, she says.
“If you lose your job, it doesn’t take much to stop paying your mortgage,” she says.
Recent data from the Labor Department shows the national unemployment rate was 4.9 percent in July, compared to its peak during the recession of 10 percent in October 2009.
“Now, we’re in the opposite stage,” she says. “The labor market has been healing, and the unemployment rate has been declining.”
Fannie Mae shares that while nationally, the foreclosure spectrum is improving, there are still some states that are seeing an increase in foreclosure rates in the past six months, such as Alaska, Wyoming, and North Dakota.
The report notes that despite the states, nationally, the percentage of loans in any part of the foreclosure process at the end of the first quarter was 1.74 percent. This data is a reported 48 basis points lower from a year ago as well as the lowest since the third quarter of 2007.
Fannie Mae reports that while first-time foreclosures are the lowest since 2000, Ben Graboske, data and analytics executive vice president at Black Knight says over half of all foreclosure starts are coming from mortgages that have already been in active foreclosure at least once before, and nearly 60 percent of new serious delinquencies are from pre-2008 vintage loans.
“What we’re seeing with regard to new foreclosure starts — and the bulk of all new troubled loans, in fact — is that they’re largely still a remnant of the crisis,” Graboske says.
The report sites Graboske who adds that recent trends reflect ongoing efforts by servicers to resolve delinquencies through loss mitigation, including retention options like loan modifications and liquidation options such as short sales and deeds-in-lieu.
Velz adds that tighter lending standards may also be contributing to the drop in foreclosures and delinquencies, according to Fannie Mae.