After more than six quarters of declining rates of serious mortgage delinquency in the metropolitan U.S., the rates of serious delinquency are climbing back from their June 2011 low according to the latest data from Foreclosure-Response.org. Serious delinquency, defined as the share of loans in foreclosure plus the share of loans delinquent 90 or more days, rose from 9.2 percent in June 2011 to 9.7 percent in December 2011 for the nation’s 100 largest metro areas, reaching the same rate as a year before. The 90-plus-day delinquency component of the figure remained relatively flat at 3.8 percent, roughly where it has remained for the past four quarters. However, the share of homes in foreclosure continues to rise, and now stands at 5.9 percent. The average rate for all 366 metro areas has been following the same pattern.
The data, compiled from the 100 largest metros, suggests that the force behind rising foreclosure rates has been a buildup of foreclosed homes, especially in states that require a judicial foreclosure process, where courts must make a final decision about a property before it can exit foreclosure. In metros in judicial foreclosure states, the average foreclosure rate stood at 7.2 percent in December of 2011, while metros in states without a judicial foreclosure process had an average rate of 4.7 percent. Moreover, the foreclosure rate in judicial areas has grown every quarter since March 2009, when Foreclosure-Response.org began tracking the data, while foreclosure rates in non-judicial metros have remained roughly flat for the last five quarters.
However, Center for Housing Policy Senior Research Associate Maya Brennan, a member of the Foreclosure-Response.org team, cautions that it is not the judicial foreclosure process itself that is the source of the problem, but rather inadequate judicial resources applied to resolve the backlog of foreclosures on the docket.
“We don’t mean to suggest that states with a judicial foreclosure process should end that practice,” said Brennan. “Review by the courts offers safeguards for borrowers and opens alternative ways to resolve foreclosure, like mediation. Devoting more judicial resources to processing the high volume of foreclosures would help ensure due process without burdening homeowners, lenders, and neighborhoods with unreasonably long foreclosure timelines.”
Nearly half of the 100 largest U.S. metro areas (46) are located in states with a judicial foreclosure process. Foreclosure backlog is particularly acute in the housing markets of many metro areas in New York, the state with the longest average foreclosure process, as well as in Florida and Ohio, two more judicial process states. However, being in a non-judicial state does not guarantee a low rate of foreclosures and 90-plus-day delinquencies. A number of metro areas, including Memphis, Las Vegas and several cities in California’s Central Valley, continue to show high levels of serious delinquency, perhaps reflecting continued economic challenges as well as temporary foreclosure delays.
Florida is notable as a state that both has a judicial foreclosure process and was hit extremely hard by the foreclosure crisis. Foreclosure trends in Florida metros have mirrored the average figure for the 100 largest metros, but the foreclosure rate has grown at a much faster clip. While the national foreclosure rate in the top 100 metros grew by 1.8 percentage points during the March 2009 to Dec. 2011 period for which Foreclosure-Reponse.org has data, in Miami, Orlando and Jacksonville, foreclosure rates have grown by more than five percentage points over the same period.
Statewide, the average property is stuck in the foreclosure process for more than 800 days before exiting, likely due to inadequate judicial resources. However, the state is working to address the problem. This year Florida re-hired retired judges to help manage the case load of backlogged foreclosures.
“The foreclosure backlog appears to have been far too great for the courts in judicial review states to process without additional staffing,” said Rob Pitingolo, research assistant at the Urban Institute and author of the study. “On the other hand, in states without a judicial review process, foreclosures move through more quickly, but borrowers may more easily fall victim to fraud and other abuses. To protect homeowners and return stability to the market, all states need to find a way to process foreclosures that balances expediency with fairness.”
The Foreclosure-Response.org data—released quarterly by the Center for Housing Policy, Urban Institute and Local Initiatives Support Corporation (LISC)—provides numbers for the housing markets of all 366 U.S. metro areas. Analysis focuses on the 100 largest metro areas to avoid comparing very small and very large metro areas. New findings in this edition include an analysis of the relationship between an area’s foreclosure process and serious delinquency rates, and regional comparison of those statistics.
Key findings include:
►Rates of serious mortgage delinquency are rebounding in the 100 largest U.S. metro areas, after a downward trend between December 2009 and June 2011. The serious delinquency rate stands at 9.7 percent as of December 2011—back to its rate one year ago. It remains to be seen whether the rate will stabilize or return to its national peak from December 2009 of 10.5 percent.
►The rebound in the serious delinquency rate reflects a steady increase in the foreclosure rate over the past three years. The December 2011 foreclosure rate reached 5.9 percent for the 100 largest metropolitan areas. Meanwhile, the 90-plus day delinquency rate has leveled-off and now stands at 3.8 percent. These two components form the serious delinquency rate.
►The high foreclosure rate reflects a backlog of homes in the foreclosure process for an extended period of time. Extremely protracted foreclosure processes are typically found in judicial foreclosure states where court review is required before completing a foreclosure. When foreclosure filings exceed the court's capacity, properties can enter a lengthy foreclosure limbo.
►Looking at the nation’s 100 largest metros, the difference between foreclosure rates in judicial and non-judicial areas is sharp. In judicial areas, the average foreclosure rate as in December 2011 was 7.2 percent, while the average rate in non-judicial areas was 4.7 percent.
►Judicial states may need to increase their courts' capacity to complete foreclosure cases in order to process this backlog and stabilize affected communities. Switching to non-judicial processes is another option, but could limit safeguards for borrowers and reduce opportunities to identify non-foreclosure solutions through mediation.