Overdues Still Causing Need for Investor Vigilance

Mortgage Foreclosure

Investors heaving a sigh of relief that the foreclosure crisis isn’t an imminent danger to their collateral any more are mostly right.

Completed foreclosures have been tapering off for several years and are way down year to year for 2016. But delinquencies bounced up during the fourth quarter of last year, for the first time in years. And there are still a few states where mortgage performance can keep servicers awake at nights.

And they are not the familiar poster children states of the overdues crisis like Florida, California and the “sand states” of Nevada and Arizona.

Take New York and New Jersey, judicial states where foreclosures tend to take longer than in non-judicial states. At the end of the third quarter of 2016, delinquencies on mortgages made in both the Empire State and the Garden State were above five percent and had risen from the second quarter, according to the Mortgage Bankers Association.

So for New York, the total delinquency rate was 5.33 percent, a jump of 12 basis points. And in New Jersey, it was 5.66 percent, up five basis points. What’s going on in this part of the country? Unemployment has remained a problem for both these states, who were in the bottom half of the U.S. Bureau of Labor Management’s state ranks for employment in December of last year. Their ranks were right next to a couple of states very familiar to mortgage investors. New Jersey and Arizona were paired together in the bottom half of the unemployment charts, as were Florida and New York.

The delinquency numbers do not include foreclosure numbers, which are trending down in both these states as well as the nation as a whole. In New York in the third quarter of last year, foreclosure starts fell seven basis points to 0.4 percent, while those in the foreclosure pipeline were down 16 bp to 4.32 percent.

The foreclosure story in New Jersey is quite similar. Foreclosure starts fell 10 basis points to. 0.65 percent, while loans in the process of foreclosure dropped 18 bp to 5.79 percent.

Here’s an interesting (and a little scary) stat: due to the judicial backup, the percentage of loans in the process of foreclosure in New Jersey (5.78 percent) is higher than the total for delinquent loans (5.66 percent)!

Frank Nothaft, chief economist at CoreLogic, said about New York and New Jersey in the firm’s foreclosure report for October: “Both states experienced the highest serious delinquency rates in the nation, reflecting lagging home values in most neighborhoods and an unemployment rate above the national average.”

Nothaft flagged the two states again in CoreLogic’s report for November, saying serious delinquencies remained the country’s highest, at 5.6 percent for New Jersey and five percent for New York.

Overall, though, the national foreclosure story remains quite good. November inventory numbers were down 2.4 percent from November 2015, marking a run of more than five straight years of months that were down year to year.

That being said, the Mortgage Bankers Association’s latest quarterly report found an uptick in delinquencies for the fourth quarter, though the foreclosure numbers continued to show improvement.

The delinquency rate for one-to-four-unit residential properties increased to a seasonally adjusted rate of 4.8 percent of all loans outstanding at the end of the fourth quarter of 2016, MBA said. “The delinquency rate was up 28 basis points from the previous quarter, and was three basis points higher than one year ago.” Rates on new foreclosure starts, however, were at ten year lows,” the group said.

According to Marina Walsh, MBA’s vice president of industry analysis, “The overall delinquency rate in the fourth quarter increased across all loan types – FHA, VA and conventional – as compared to the third quarter. However, it should be noted that last quarter’s overall delinquency rate was at its lowest level since 2006. It is not unexpected that delinquencies could eventually increase off such a low base.”

CoreLogic’s report says completed foreclosures nationally dropped to 26,000 in November from 35,000 the year before. That’s down 25 percent year to year and 2.4 percent from October.

The seriously delinquent number, meanwhile, is at 2.5 percent, the lowest since August 2007 as the mortgage industry started to enter the crisis. About 325,000 homes were in some stage of foreclosure, down from 465,000 the year before. That’s less than one percent of all homes. And in another milestone, the number of homes in serious delinquency, at 1,004,000 in November, is poised to fall below the one million mark.

New York and New Jersey were again the poster states for most units in foreclosure inventory, with both above 2.5 percent. The states where investors can feel easiest about inventory? They include former bad boys Arizona and California, at just 30 basis points.

There’s another state investors are starting to feel good about, too. Florida continues to work out of the default mess, as it tops the nation in completed foreclosures, with 48,000 done in the last 12 months. That’s a wide lead over second-place Michigan, at 31,000.

The news is good on the commercial and multifamily sides of the mortgage business, as well. Investors in securities backed by those types of collateral, except for CMBS, will be comforted by delinquency rates below one percent at banks and thrifts, Fannie Mae, Freddie Mac, and life insurers for the third quarter of last year. CMBS overdue  30 or more days popped up to 4.23 percent for 30 days and over delinquencies. That’s an increase of 19 basis points from the quarter before.

Jamie Woodwell, MBA’s vice president of commercial real estate research, said “Loans held in commercial mortgage-backed securities were the one major group to see a slight increase in the rate – largely driven by the fact that many of the stronger loans that are set to mature in 2016 and 2017 are paying off, reducing the denominator and leaving behind weaker loans.  This trend is likely to continue for the next few quarters.”

The difference between delinquencies for CMBS and the other sectors was fairly sharp. Banks and thrifts were at 62 basis points (90 days or more), life insurers had a pristine 8 bp in delinquency (60 days or more), Fannie Mae, seven basis points, and the champ, Freddie Mac at just one basis point.

Commercial/multifamily mortgage investors, take notice! You can feel pretty confident on those Freddie Mac loans.


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This article has been exclusively written for GoRion by...

Mark Fogarty

Mark Fogarty

Mark Fogarty, a former editor of National Mortgage News, has covered and analyzed mortgage finance for more than 30 years and has chaired more than 75 meetings in the mortgage industry.

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