Mortgage performance analysis shows divergent recovery.

Author:Blecher, Herb
Position:Full Disclosure

Since January 2010, national mortgage delinquencies have declined almost 30 percent, new problem-loan rates are down more than 50 percent and home prices in many markets are on the upswing. In a nutshell, the situation in the mortgage market has markedly improved.

As the clouds clear, there are still several dominant themes that will he critical to track as we (hopefully) continue to return to a more normal" market.

While the delinquency situation has improved, a large pipeline of delinquent or at-risk mortgages still gives modification and refinance programs a significant role in mitigating current and future problem loans. In addition, the inventory of loans in the foreclosure process has not seen nearly the rate of improvement as the metrics cited here, and the disparity between judicial and non-judicial states continues to grow and raise questions about the potential for collateral impacts.

This divergence is the result of a much lower rate of foreclosure sales associated with the judicial state foreclosure process, driving longer timelines as compared with non-judicial states. Since the start of 2012, and continuing a trend that existed even prior to the crisis, approximately 2.1 percent of judicial foreclosure inventory has moved to sale in a given month as compared with about 6.5 percent in non-judicial states.

This has had a profound effect on foreclosure inventories (see Figure where the levels in judicial states are almost three times that of non-judicial states and only 5 percent lower than historic highs, compared with a 27 percent drop from the peak in non-judicial states.

At current rates (and holding all else equal), it would take 33 months to clear the inventory of loans 90 or more days past due or in foreclosure in non-judicial states compared with 69 months in judicial states.

To be clear, the percentage of loans that are delinquent but not in foreclosure has declined in virtually all regions. Loans 90 or more days past due represent 3 percent of all active loans in non-judicial states versus 3.2 percent in judicial--a decline from 5.5 percent and 5.2 percent in January 2010, respectively.

During this period, we estimate that more than 3 million modifications took place nationwide and have observed that the volumes relative to delinquent inventory were comparable whether focusing on judicial or non-judicial states; the rate of foreclosure starts between the two was also similar.

This unprecedented level of modification...

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