November 16th, 2011 9:25 PM by Lehel S.
Foreclosure start rates on securitized, severely delinquent residential mortgage loans increased to over 10% a month and closer to historical averages, according to the latest RMBS Performance Metrics report from Fitch Ratings.
Managing director at Fitch Ratings, Diane Pendley says the increase is “likely a sign that servicers are playing catch-up on actions that have been delayed over the past year.”
The rating agency finds that “one year after industry-wide deficiencies were revealed in foreclosure procedures” pushing mortgage servicers to review their data and update their processes, the rate of foreclosure starts in the private-label RMBS sector is at “almost double the historical lows” of a year ago, and approaching 14%--the average rate between 2000 and 2010.
She argues that now mortgage servicers “generally feel they have implemented the corrective actions that they determined were needed.” And since such actions have been already taken servicers need to simultaneously “process a significant backlog of problem loans” and continue to implement other process changes.
The increase in foreclosure rates has been concentrated primarily among the so-called seriously delinquent loans.
In the last five months foreclosure initiation rates among borrowers who have not made a payment in over six months increased by nearly 50%.
Comparatively, the roughly 25% increase in the foreclosure rate of borrowers that had missed between three-and-six payments over the same time period was more modest.
Currently foreclosure completion rates in judicial foreclosure states remain near historical lows with the average foreclosure process lasting about 15 months until completion—compared to eight months in non-judicial foreclosure states.
Several factors that have been consistent in the past few years are driving these trends, Fitch said, servicers' continued loss mitigation efforts, a backlog in court foreclosure filings and weak demand in the housing market.
Analysts note it may be too early to fully evaluate the outcome. “How any change in foreclosure starts will affect the supply of distressed inventory may not be evident for over a year.”
Fitch said it expects to see this move towards more normalized foreclosure initiation rates will add to the large inventory of REOs and other distressed properties on the market and ultimately “increase negative pressure on US home prices.”
These findings reconfirm precious Fitch outlooks that indicate “home prices will likely see another 10% decline before they fully stabilize.”