Foreclosures Show No Sign of Decline
The percentage of American homeowners behind on their mortgage payments fell during the first quarter to the lowest level since the end of 2008. But the share of loans in foreclosure remains stubbornly high, according to a survey Wednesday.
At the end of March, 11.8% of all loans were at least 30 days past due or in foreclosure, the report from the Mortgage Bankers Association said. While that is still high by historical standards, it has improved steadily over the past two years, falling from 12.8% a year ago and 14.7% two years ago.
The decline in the share of homeowners late on payments was due almost entirely to fewer new cases of delinquency, a sign that households’ finances are improving. The percentage of borrowers behind on their mortgage but not in foreclosure fell to 7.4% at the end of March from 8.3% a year earlier.
“The drops we continue to see there are the best news out of this. It indicates the speed with which we’re working through the backlog” of bad loans, said Jay Brinkmann, chief economist of the Mortgage Bankers Association. The survey covers about 88% of all U.S. mortgages, or about 43 million loans.
Separately, the Commerce Department said construction starts on new housing jumped 2.6% in April to a higher-than-expected annual rate of 717,000, suggesting that home-building—a sector with the potential to boost the wider economy—continues to improve. New permits to build homes fell 7%, though the drop was from a 3½-year high in March.
Foreclosures, however, remain a concern. Although banks initiated fewer foreclosures in the first quarter than at any time since 2007, the share of loans in the process remains high.
Some 4.4% of mortgages were in some stage of foreclosure at the end of March, unchanged from the previous quarter and down only slightly from 4.5% a year ago.
The numbers mask big variations by state. The national foreclosure rate remains elevated largely because of states that require banks to process foreclosures through the courts. In these so-called judicial states, banks have moved to take back homes very slowly since judges uncovered record-keeping abuses in foreclosure processing 18 months ago. Banks have encountered fewer hurdles in nonjudicial states.
Mortgages in Trouble
The foreclosure rate in judicial states stands near 6.9% and has been flat or rising over the past year. Nonjudicial states have a much lower rate—about 2.8%—as they have been able to work through foreclosures quicker.
Of the 11 states with foreclosure rates above the national average, 10 of them have judicial processes. The top three are all judicial states: Florida had a foreclosure rate of 14.3% at the end of March, followed by New Jersey (8.4%) and Illinois (7.5%).
Several nonjudicial states that had severe housing problems, such as California and Arizona, have seen foreclosure rates drop below the national average. While there are signs that home prices are beginning to rise in more markets, including hard-hit Phoenix and Miami, those communities with a large “shadow” inventory of potential foreclosures could face renewed price pressure once banks take back and list for sale more of those properties.
In those states, investors have grown more confident that more foreclosures won’t be dumped on the market, said Mr. Brinkmann. There, “the market is stabilizing and people are coming back. I don’t think that’s true in Illinois right now.”