Does October’s High Foreclosure Rate Signal Stormy Times Ahead for the Mortgage Industry?

According to the October 2016 Foreclosure Market Report from ATTOM Data Solutions, a leading property data warehouse, foreclosures jumped 27 percent from the month before. What makes this report particularly surprising is that September’s data showed a 129-month low in the national foreclosure rate, news that prompted analysts to conclude that the housing crisis was all but over.

A nearly 30 percent increase is significant, which begs the question: Just how seriously should the mortgage industry take October’s data? Are these figures simply an anomaly — or should lenders proceed with caution, viewing October’s data as a portent of rough times ahead?

Putting October’s Foreclosure Rate into Perspective

Even taking October’s steep bump into consideration, the year-over-year foreclosure rate is down 8 percent. Moreover, October marks the thirteenth consecutive month of annual decreases. Going by this larger trend, the housing market continues to improve.

A couple of points stand out as potentially alarming, though. First, foreclosure activity in states like Arizona, Georgia, and Colorado appears to be tied to loans originated after 2009, after the most egregious practices of the pre-crisis era were a thing of the past. That means homeowners who qualified for loans despite more rigorous lending practices are still having difficulty making payments.

Second, foreclosure rates are considerably higher among FHA and VA loans. According to Daren Blomquist, ATTOM Data Solution’s Senior Vice President, “data shows FHA and VA loans combined represent 49% of all active foreclosure inventory for loans originated in the seven years ending in 2015.” What federal lending programs have in common is they allow homeowners to borrow with very little money down. These are our nation’s most vulnerable homeowners; that nearly half of them are defaulting on qualified new loans could mean that the market will be unable to bear even the smallest increase in mortgage interest rates.

What Does the Future Hold in Store?

One factor to watch out for is the implementation of new legislature that affects the foreclosure market. For instance, a recent ruling by the Florida State Supreme Court, in the case of Bartram v. U.S. Bank, allows lenders to re-file against homeowners in default on their mortgage loans even if the original foreclosure case was dismissed. This ruling could cause a spike in Florida filings. Another possible wrinkle might come in the form of loan modifications made through federal programs like HARP, which are about to reset at a higher interest rate. It is worth monitoring these developments carefully.

Nevertheless, despite October’s figures, most indicators suggest that the outlook for the housing market in 2017 continues to be strong.

About Peak Foreclosure Services

Peak Foreclosure Services, Inc. offers a wide range of default servicing solutions to support and meet the needs of a diverse clientele. Banks, private investors, servicers, and sub-servicers across the country rely on us to effectively navigate the complex and constrained regulatory environment of foreclosures. Our detail-oriented approach and quality service has set a high standard for the industry. Our specialists process non-judicial foreclosures in selected states including Arizona, California, Idaho, Montana, Nevada, North Carolina, and Washington, with affiliates nationwide.