The percentage of homes in the foreclosure process continued to climb in September, even as delinquencies and foreclosure starts declined, according to the latest report from data aggregator Lender Processing Services Inc.
While fewer homes are entering the foreclosure pipeline, there’s been an even more drastic slowdown in homes coming out the other end, due in large part to the "robo-signing" controversy, which has slowed the pace at which lenders can repossess homes and put them back on the market.
LPS said foreclosure starts were down 20 percent in September from a year ago, to 220,273, slightly below the three-year average. But foreclosure starts continue to outnumber foreclosure sales by a factor of more than three to one, reflecting the fact many homes are tied up in the system for months or years after lenders initiate foreclosure proceedings.
Foreclosure inventories continue to grow in judicial foreclosure states where courts handle foreclosure proceedings, with lenders taking an average 761 days to complete the foreclosure process on delinquent homeowners in those states — six months longer than in nonjudicial states.
Nationwide, nearly 40 percent of homeowners in foreclosure had not made a payment in two years, and 72 percent had not made a payment in a year or more, LPS said.
LPS estimated there were 2.17 million homes in some stage of the foreclosure process at the end of September. That’s 4.18 percent of all homes with mortgages and an 8.9 percent increase in the foreclosure rate, which stood at 3.84 percent at the same time a year ago.
Another 4.2 million homeowners were at least one payment behind on their mortgages. That’s 8.09 percent of all homes with mortgages, down 12.7 percent from the 9.27 percent delinquency rate a year ago.
A bright spot in the report was that the number of seriously delinquent loans — mortgages in arrears by 90 days or more but not yet in foreclosure — continues to decline. While 1.84 million homeowners were seriously delinquent, that’s down 39 percent from January 2010, when 3.06 million mortgages were on the verge of foreclosure.
The government is standing behind about half of seriously delinquent loans, either through Fannie Mae and Freddie Mac (19 percent) or Federal Housing Administration, U.S. Department of Agriculture and Department of Veterans Affairs loan guarantee programs (32 percent).
The rest are loans that were bundled into "private label" mortgage-backed securities (37 percent) or retained by lenders in their investment portfolios (12 percent).
While robo-signing has slowed down lender repossessions, many seriously delinquent homeowners are able to avoid foreclosure through loan modifications.
Lenders have signed off on about 2 million loan modifications since January 2010, LPS noted in reporting the downward trend in serious delinquencies. There’s been a dramatic decline in the redefault rate on modified loans, with about nine out of 10 modifications resulting in reduced payments for borrowers.
Loan modifications could be less of a factor going forward, with both Home Affordable Modification Program (HAMP) and non-HAMP loan modifications down sharply in the second quarter from a year ago.
Total loan modifications were down 44 percent during the second quarter from a year ago, to 149,000, with HAMP modifications falling 35 percent and proprietary modifications down 50 percent.
A separate report by the Census Bureau showed the steady decline in the homeownership rate during the housing bust may have hit bottom during the third quarter.
At 66.3 percent, the homeownership rate during the third quarter was down 0.6 percentage points from a year ago, but up 0.4 percentage points from the second quarter, the Census Bureau said.
For decades, the rate of homeownership ranged between 63 and 66 percent, though it began a climb above normal rates in the mid-1990s and peaked at above 69 percent just before the housing bust.
Writing on the blog Calculated Risk, Bill McBride said decennial Census numbers suggest the actual homeownership rate is now probably closer to the 64 to 65 percent range.
LPS estimates that the total number of U.S. first mortgages has declined by 6.8 percent since January 2008, when there were an estimated 55.7 million homes with mortgages.
Most of that drop — a decline of nearly 3.8 million mortgages — was presumably the result of elevated foreclosures and the lower homeownership rate. Homes that go into lenders’ real estate owned (REO) inventories or are purchased by investors in all-cash transactions don’t have mortgages.
While some homeowners would also have paid off their mortgages in full and owned their homes outright, the total number of outstanding mortgages usually grows as the population and housing stock expands and first-time homebuyers take out new loans.