Mortgage Delinquency and Foreclosures
As of September 2015, only 4.2 percent of home loans were either seriously delinquent or had transitioned into real estate owned status; however, the rate of serious delinquency and REO home loans varies widely across HUD’s 10 regions.
The collapse of the housing market and subsequent recession triggered a widespread foreclosure crisis. Many of those who had obtained unsustainable mortgages or lost their jobs because of the recession could no longer afford to the pay their mortgages. In addition, plunging housing prices left many homeowners with mortgages that exceeded the value of their homes. Some homeowners who were in the devastating position of constant mortgage delinquency and strained finances pursued mortgage modifications. There were also many homeowners who pursued strategic defaults because they found their mortgages to be deeply underwater. These steps, however, ultimately did not prevent banks and lenders from foreclosing on millions of homes as the crisis deepened.
At the height of the housing crisis in January 2010, 9.2 percent of all home loans in the country were either seriously delinquent (90 or more days past due or in foreclosure) or had transitioned into real estate owned (REO) status. These loans indicate the struggles that borrowers faced as home prices plummeted and the U.S. economy fell into recession. However, the housing market and the economy as a whole have been slowly recovering since 2010. In September 2015, only 4.2 percent of home loans were seriously delinquent or in REO status. This finding, along with falling unemployment rates and rising house prices, indicates that the overall economy is getting back on track. The degree to which local housing markets have recovered from the foreclosure crisis, however, has not been uniform. Certain states, for various reasons, still struggle to reduce foreclosure rates that are considerably higher than the national average.
The rate of serious delinquency and REO home loans varies widely across HUD’s 10 regions. At the high end, 8.1 percent of home loans in New York/New Jersey (Region 2) were seriously delinquent or in REO status in September 2015. By contrast, only 1.9 percent of loans in HUD’s Region 8, the Rocky Mountain region, were seriously delinquent or in REO status.
These drastic differences can be attributed to a number of reasons, including how states chose to implement various mortgage aid packages working in partnership with the federal government, a state’s specific economic position, and differences in foreclosure policies and laws across states. New York and New Jersey, for example, have two of the longest foreclosure process timelines in the country because they follow a judicial foreclosure policy, meaning that foreclosures must go through the court system. Such policies often elevate a state’s rate of homes in foreclosure. In contrast, the state of Texas, in HUD’s Southwest region (Region 6), uses a much faster nonjudicial foreclosure process.
Furthermore, a state’s economic position has a significant effect on mortgage delinquency and REO status rates. In New Jersey, for example, 9.3 percent of all home loans were seriously delinquent or in REO status as of September 2015, up from 8.6 percent in June and more than double the current national rate. Although this high rate can be attributed in part to its long judicial foreclosure process, the economic impact of casino closures in Atlantic City is also a factor. Four casinos closed in the beachside resort town in 2014, resulting in a loss of more than 8,000 jobs. This job loss, in addition to other economic factors throughout the state, has reduced the ability of homeowners to make their mortgage payments.
Moreover, Nevada (Region 9) and Florida (Region 4), which were hit particularly hard by the housing crisis, continue to have elevated numbers of mortgages that are seriously delinquent or in REO status as these two states struggle toward recovery. In September 2015, Nevada’s rate of seriously delinquent and REO status loans was 5.4 percent, whereas Florida’s rate was 6.7 percent. Florida’s improvement, however, is notable considering that the state’s rate of seriously delinquent and REO status loans was 18.8 percent in June 2010.
Foreclosure is a homeowner’s nightmare, taking away not only families’ homes but also their sense of security and well-being. Beyond their direct impact on homeowners and families, foreclosures also affect surrounding homes and neighborhoods, dragging down the prices of surrounding homes and creating a vicious cycle of further foreclosures and an areawide decline in home prices. State and federal policymakers implemented a number of policies to tackle the widespread foreclosure problem and circumvent this vicious cycle. The data presented in HUD’s U.S. Housing Market Conditions reports and Regional Narratives help show researchers, advocates, and policymakers that foreclosures and mortgage delinquencies, although improving, are still above historic norms in some states. As a result, the U.S. housing market and household finances still have considerable room for improvement following the nation’s greatest economic hardship in 75 years.
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