Homeowners Use Tax Refunds as Lifeline

The foreclosure picture continues to improve in the U.S., according to the recently released Black Knight Financial Services Mortgage Monitor.

An increase in cure activity, defined as a borrower paying their mortgage current from some stage of delinquency or foreclosure, helped in part to improve delinquencies in December 2016 according to the report. It also said more than 450,000 borrowers paid themselves current on their mortgages, representing a 17 percent monthly rise.

The inventory of loans in foreclosure declined by more than 30 percent year-over-year, edging out 2013 for the highest rate of decline on record. Severely delinquent foreclosures, defined as those that haven’t made a payment in over two years, dropped by 38 percent from 2015. Less delinquent foreclosure inventory dropped by 21 percent.

December also saw only 59,700 foreclosure starts, a 24 percent decline from the same time one year ago.

The report also noted a decline in prepayment. Prepayments from borrowers with a credit score of 720 or higher fell by 22 percent, but prepayments declined by only 8 percent for those with sub-680 credit scores.

The report also examined the affects tax season has on mortgage performance. According to Black Knight analysts, more than 40 percent of American taxpayers file their tax returns by the first weekend in March, with nearly one in five having done so within the first two weeks of tax season.

“Incentive undoubtedly plays a part, as Americans who file early are more likely to receive a refund than those filing later and also receive larger refunds on average,” the analysts said.

Their data also found that mortgage cures spike during February and March, suggesting many Americans use their tax returns to make past due payments on their mortgage.

“The increase in cures is observed across the delinquency and foreclosure spectrum,” but it is most pronounced in the early and moderate stages of delinquency,” they said. “This makes sense in that a tax refund may be sufficient to pay a few months of past due mortgage payments, but is likely not enough to bring a homeowner out of severe delinquency.”

The analysts said if history is any predictor, they expect as many as 290,000 borrows to pay their loan current in February and March, on top of normal cure volumes for a normal month.