Foreclosure start rates on delinquent U.S. mortgages are rising toward historical averages one year after industry-wide deficiencies were revealed in foreclosure procedures, according to the latest RMBS Performance Metrics report from Fitch Ratings.
An increase to more normalized foreclosure initiation rates will ultimately add to the inventory of distressed properties on the market. This will in turn increase negative pressure on US home prices further supporting Fitch’s view that home prices will decline further before they fully stabilize.
Foreclosure start rates on severely delinquent loans have increased to over 10% a month in the private-label RMBS sector. This is almost double the historical lows from a year ago, and is approaching the average rate between 2000 and 2010 of 14%.
The increase in foreclosure rates has been concentrated primarily in the most severely delinquent loans. Foreclosure initiation rates have nearly doubled in the last five months for borrowers that have not made a payment in over six months. Fitch has observed a more modest increase of roughly 25% for borrowers that have missed between three-and-six payments over the same time period.
How any change in foreclosure starts will affect the supply of distressed inventory may not be evident for over a year.
The foreclosure process is currently taking on average approximately eight months to complete in non-judicial foreclosure states and 15 months in judicial foreclosure states. Foreclosure completion rates in judicial states remain near historical lows. Driving these trends are servicers’ continued loss mitigation efforts, a backlog in court foreclosure filings and weak demand in the housing market.