Are Foreclosure Rates Falling?

It is still difficult to say. What is relatively safe to say about 2010 is that the bottleneck has shifted – from delinquencies to the foreclosure inventory. In other words, a significant portion of the delinquent inventory that built up since the beginning of the crises is now moving into the foreclosure inventory as modification efforts and cures are taking effect. The result is declining delinquent inventory and increasing foreclosure inventory. What is also relatively safe to say is that new problem loans continue to improve; all states are showing significant 12-month declines in new seriously delinquent loan inventory and a 38 percent annual decline nationally.

To put it into numbers, according to Lender Processing Services (LPS), there were 8.1 million total non-current loans (delinquent and in foreclosure inventory) in February of 2010 – the peak of the foreclosure crisis. Currently there are about 6.9 million non-current (i.e., at least 30-days delinquent) loans. This decline has contributed to a significant drop in delinquencies. Delinquencies fell by 18 percent over the course of 2010, while more serious delinquencies (90+ days late) fell by 12 percent. Since a share of these delinquencies that have not cured or been modified has ended up in the foreclosure inventory, the foreclosure inventory is up over 9 percent over the past year.

Similarly, foreclosure starts were up over 10 percent over 2010, though the evolving crisis in documentation and foreclosure processing might slow the rate at which delinquent loans move to foreclosure starts. Early 2011 numbers already suggest that trend. Nevertheless, out of 6.9 million first-lien, non-current loans, 2.2 million are in foreclosure inventory, 2.1 million are seriously delinquent, 1.8 million are new delinquencies and around 710,000 are 60 to 90 days late.

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