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Interest Rate Resets a Concern for Modified Mortgages

The Data and Analytics division of Black Knight Financial Services [1] released its latest Mortgage Monitor Report, which analyzed data as of the end of April 2014. The report found that there were roughly 2 million modified mortgages facing interest rate resets, with 40 percent of those loan modifications currently underwater.

According to Black Knight, more than one in 10 of all active loans are in near negative equity positions, with 9.0 percent equity or less.

"We have seen a continual reduction in the number of underwater borrowers at the national level for some time now, but modified loans show a different picture," said Kostya Gradushy, Black Knight's manager of Loan Data and Customer Analytics. "While the national negative equity rate as of April stands at 9.4 percent of active mortgages, the share of underwater modified loans facing interest rate resets is much higher—over 40 percent."

Gradushy noted that another 18 percent of modified borrowers have 9 percent equity or less in their homes, and that resets in interest rates pose an increased risk for defaults in the years ahead.

Home prices continued towards recovery, up to $235,000, a monthly increase of 0.97 percent and a yearly increase of 7.0 percent.

April saw a decline in foreclosure starts, which fell 10.56 percent from March to 78,800 in April. Troubling, the total U.S. loan delinquency rate increased 1.84 percent month-over-month to 5.62 percent. The loan delinquency rate remains down, however, on a year-over-year basis by 9.5 percent.

The number of properties in foreclosure pre-sale in April was approximately one million, down 54,000 from March and down nearly 575,000 from April 2013.

"Finally, as foreclosure sales (completions) increased in both judicial and non-judicial states—though the increase was larger in the former than the latter—Black Knight observed the gap between judicial and non-judicial pipeline ratios (ratio of loans 90 or more days past due or in foreclosure to the current rate of foreclosure completions) had narrowed to its lowest point since at least 2005," Black Knight noted.

On average, foreclosures in judicial states take 52 months to complete, compared to the 2011 high of 118 months. By comparison, the average time to complete a foreclosure in non-judicial states in 2011 was 33 months. It was has since increased to 48—the highest point on record.

States with the highest percentage of non-current loans include: Mississippi (13.8 percent), New Jersey (12.9 percent), Florida (11.7 percent), New York (11.0 percent), and Louisiana (10.8 percent).

States with the highest percent of seriously delinquent loans include Mississippi, Nevada, Rhode Island, Alaska, and Massachusetts.

Black Knight noted that seven of the top ten states for total non-current loans are judicial states.