Foreclosure starts reached their highest level in a year in January, but foreclosure completions are falling faster than the seriously delinquent loan rate – resulting in an across the board increase in foreclosure pipeline ratios, according to Black Knight Financial Services' January 2015 Mortgage Monitor released Monday.
Repeat foreclosure starts made up more than half (51 percent) of all foreclosure starts in January following an 11 percent month-over-month increase. First time foreclosures rose by just 0.33 percent from December to January. Foreclosure starts in judicial states – where the process must pass through the court system – spiked by 10 percent month-over-month in January, while foreclosure starts in non-judicial states ticked up by just 1.7 percent monthly. Overall foreclosure starts totaled 94,000 in January compared to 89,000 for December and 94,000 for January 2014; foreclosure starts have not totaled more than 100,000 for any one month since December 2013.
The higher foreclosure rate in judicial states is largely due to the disparity between the percentage of 90-day delinquent loans in judicial foreclosure states vs. non-judicial, according to Black Knight. In January, 2.6 percent of mortgage loans in judicial states were delinquent by 90 or more days, compared to a rate of 1.9 percent in judicial states. The difference of 0.66 between the two represents a post-crisis high, according to Black Knight.
"Judicial states are also seeing higher levels of both new problem loans and serious delinquencies (loans 90 or more days delinquent, but not yet in foreclosure) than non-judicial states, although volumes are down overall in both categories," said Trey Barnes, Black Knight’s senior vice president of Loan Data Products.
Meanwhile, foreclosure sales (completed foreclosures) have been declining at a faster rate than the seriously delinquent loan inventory in both judicial and non-judicial states, resulting in an increase in foreclosure pipeline ratios – the backlog (in months) of foreclosure and 90-day delinquent inventory based on current foreclosure sale rates, according to Barnes.
"In judicial states, the pipeline ratio now stands at 58 months; up quite a bit from the 47 months seen in 2013, but a far cry from its high of 118 months a couple of years before that. In recent months, non-judicial pipeline ratios have reached similar levels to judicial pipeline ratios," Barnes said. "As of January, the non-judicial pipeline ratio was at 53 months, close to an all-time high. Throughout the housing crisis, non-judicial pipeline ratios were significantly lower than those in judicial states."
The latest Mortgage Monitor also examined the effect that "dual-tracking" legislation has had on foreclosures. In September 2013, the Consumer Financial Protection Bureau (CFPB) passed a law prohibiting dual tracking measures, meaning lenders or other mortgagees can no longer simultaneously negotiate a loan modification and pursue foreclosure with a borrower.
As a result of the anti-dual-tracking legislation, the average number of months a loan was delinquent before beginning the foreclosure process more than doubled from six and a half months to 14.6 months. Foreclosure starts on mortgage loans that were less than 120 days delinquent were practically non-existent in 2014, according to Black Knight. The average number of months delinquent on loans for first-time foreclosure starts in January was 9.1 months.