How Recent Wildfires Could Spark a Rise in the Foreclosure Rate

The mortgage delinquency rate has hit a 12-year low nationwide, dropping to 0.5 percent in May, 2018 — the lowest level since September, 2006. In the last year alone, the rate declined by 0.2 percent.

The strengthening economy and continued low inventory are fueling these numbers. Although good news for homeowners, that’s potentially bad news for investors and bargain seekers who are being squeezed out of what some are calling “the most competitive housing market [the United States] has seen in recorded history.”

One exception to the prevailing trend could be areas affected by the wildfires that swept through parts of California, Montana, and Arizona this year. If the past is any indication, investors can expect to see a bump in the severe mortgage delinquency rate, and ultimately the foreclosure rate, for these hard-hit areas.

Devil in the Details

Some figures illustrate how solid the current housing market is. The overall mortgage delinquency rate, meaning those that have reached any stage of delinquency, stood at 4.2 percent in May, 2018, a year-over-year decline of 0.3 percent.

On an even more granular level, mortgages that slipped to 30 days overdue remained constant at 0.8 percent in a year-over-year comparison. Mortgages that fell to 60 to 89 days overdue also remained the same, at 0.6 percent.

However, early-stage delinquencies, or mortgages that are 30-59 days past due, dropped slightly from May, 2017 to May, 2018, from 1.9 percent to 1.8 percent. These early-stage delinquencies, the strongest indicator of overall market health, give the best snapshot of current market conditions.

A Trend Worth Watching

Despite the strong numbers, some areas may be about to buck the trend.

According to CoreLogic, natural disasters have an impact on the mortgage delinquency rate. Their analytics tracked severe delinquencies — when homeowners are 90 days or more overdue — in the wake of disasters like the hurricane that hit Puerto Rico, flooding in Texas and Florida, and the wildfire that consumed over 5,000 homes in Santa Rosa, California last year.

Last year’s storm damage, which devastated major metropolitan areas like Houston, Texas and Naples, Florida, has seen the number of severe delinquencies triple. In San Juan, Puerto Rico, they have quadrupled. These severe delinquencies remain elevated even when early-stage delinquencies correct themselves.

Although it is still too early to tell, if history repeats itself, the fire-damaged communities in America’s West may be the next to show signs of trouble.

About Peak Foreclosure Services

Peak Foreclosure Services, Inc. offers a wide range of default servicing solutions to meet the needs of banks, private investors, servicers, and sub-servicers across the country. Attention to detail and exemplary service allow Peak Foreclosure to navigate the complex and constrained regulatory environment of foreclosures and deliver for their diverse clientele.