Wednesday, May 9, 2012

Serious mortgage delinquency is rising two years after the foreclosure crisis' peak. Why?

by Maya Brennan, Center for Housing Policy

For more than a year, serious mortgage delinquencies seemed to be stabilizing. The average serious delinquency rate in the nation’s 100 largest metro areas would creep down slightly one quarter, hold steady another. Through this period of stabilization, the rate remained shockingly high from a historical perspective, but seemed to be in a holding pattern — quarter after quarter of marginal improvements. The latest data show something different. The serious mortgage delinquency rate is rising again.

The warning signs were there even as the rate was trending down. As the overall serious delinquency rate was stabilizing, the foreclosure component was rising. Loans were entering the foreclosure process faster than they were exiting – pushing the rate up and up. The 90+ day delinquency rate was dropping enough to obscure that, but not anymore.

An analysis by our partners at the Urban Institute shows that foreclosure rates have been both higher and more consistently increasing in metro areas with judicial foreclosure processes compared with those with non-judicial foreclosures. While judicial review provides important safeguards, it also takes time. The foreclosure crisis increased caseloads, and many courts are having trouble keeping up.

Time is a friend and foe for foreclosure response. Some time is needed to ensure that foreclosure cases have merit and to allow tools like mediation to work. Extended timelines, like those in hard-hit judicial states like Florida and New York, do little more than increase foreclosures’ damage to properties, borrowers, and communities.

Florida is re-hiring retired judges and court staff to help process its foreclosures. Other states with severe backlogs may also need to increase court resources or find ways to review cases more efficiently. The alternative is multi-year foreclosure timelines that make long-term recovery harder for everyone.

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