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National Servicer Settlement Requirements Contribute to Drop in Foreclosures
Dec 05, 2012

The October Mortgage Monitor report released by Lender Processing Services Inc. (LPS) showed a significant decline in foreclosure starts for the last two months—down 21.9 percent in October and almost 48 percent on a year-over-year basis—leading to a nearly seven percent drop in overall foreclosure inventory. However, as LPS Applied Analytics Senior Vice President Herb Blecher explained, this fall-off in foreclosure starts is likely a temporary phenomenon, driven by new borrower notification requirements called for in the National Mortgage Settlement. "LPS observed a drop-off in foreclosure starts in September that accelerated in October," Blecher said. "This decline coincided with the implementation of new procedural changes outlined in the National Mortgage Settlement, which requires, among other things, that mortgage servicers provide written notice to borrowers 14 days prior to referring a delinquent loan to a foreclosure attorney. This has resulted in what is likely a temporary slowdown in foreclosure starts that we do not believe is indicative of a longer-term trend. However, we will continue to monitor this activity closely in the coming months." This month's Mortgage Monitor also drew upon data from the LPS Home Price Index, to look at both the trajectory of home price increases as well as the make-up of residential real estate transactions. While appreciation continues to rise nationally—U.S. home prices were up 3.6 percent year-over-year in September and on track to gain between five to seven percent for 2012—overall sales volumes remain relatively low. During the past 12 months, there have been approximately 4.1 million residential real estate sales, less than half the annualized rate at the market's peak in November 2005. Further, 1.3 million of those transactions have been distressed sales, compared to just 226,000 at the peak. As a point of reference, despite 2012's healthy rate of appreciation, home prices are still nearly 23 percent off their June 2006 peak. Looking at the current state of mortgage originations, LPS found that September loan originations were down, likely due to the shortened number of business days in the month. However, prepayment speeds (historically a good indicator of refinance activity) rebounded in October, and as such, LPS expects to see overall origination numbers pick up for that month. LPS also found that mortgage spreads remain elevated, averaging 197 basis points above the 10-Year Treasury rates, with interest rates consistent across all product types. As reported in LPS' First Look release, other key results from LPS' latest Mortgage Monitor report include: ►Total U.S. loan delinquency rate: 7.03% ►Month-over-month change in delinquency rate: -4.91% ►Total U.S. foreclosure pre-sale inventory rate: 3.61% ►Month-over-month change in foreclosure pre-sale inventory rate: -6.77 % ►States with highest percentage of non-current loans: FL, MS, NJ, NV, NY ►States with the lowest percentage of non-current loans: MT, WY, SD, AK, ND
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