Industry NewsMortgage

Foreclosure timelines now measured in years

Process taking longer in some states with new laws protecting homeowners

The number of mortgages that are delinquent or in foreclosure is declining, but those in the pipeline are years away from clearing, according to a report from Lender Processing Services Inc. released today.

Of all the loans in the foreclosure process in January 2012, 42 percent were still in the foreclosure process a year later, the report said. Only 22 percent had become real estate owned (REOs), and 11 percent had been liquidated through short sales or deeds-in-lieu.

In states where the foreclosure process is handled by the courts, 58 percent of loans in foreclosure are more than two years past due. In judicial foreclosure states, that figure is 33 percent. Judicial foreclosure states have three times as much foreclosure inventory as judicial foreclosure states.

In judicial foreclosure states, it takes an average of 62 months (more than five years) for a foreclosure to clear, almost twice as long as in a nonjudicial foreclosure state: 34 months, or nearly three years.

Broken down by state, judicial states New York and New Jersey had the longest timelines: 607 months (more than 50 years) and 483 months (more than 40 years), respectively. By comparison, in nonjudicial Texas and Virginia, the averages were 40 and 39 months, respectively.

But the difference between judicial and nonjudicial states is decreasing due to recently enacted "judicial-like" legislation in some nonjudicial states, the report said. In Nevada, legislation has resulted in a jump from a 27-month timeline in June 2012 to 57 months at the end of January, and in Massachusetts, the average timeline has risen from 75 to 171 months since last January, the report said.

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"As California’s recently enacted Homeowner Bill of Rights is closely modeled on the Nevada legislation, we’ll be watching that state closely over the coming months to gauge its impact, as well," said LPS Applied Analytics Senior Vice President Herb Blecher in a statement.

The report found that states with high numbers of underwater borrowers are still seeing high levels of new problem loans, particularly "sand states" such as Nevada, Florida and Arizona where 45 percent, 36 percent and 24 percent of mortgages, respectively, are underwater.

Credit standards have improved across the board in recent years, so the majority of the new problem loans are coming from "bubble" vintages (loans originated in 2007 and earlier). Loans to "subprime" borrowers — sometimes characterized as those with credit scores below 620 — were common.

Currently, even loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs average credit scores above 700, LPS said. The average overall credit score in 2012 was 747.

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