The Foreclosure Rate Is Now Back to Pre-Crisis Levels

Judicial States Continue to Have Higher Foreclosure and Serious Delinquency Rates

By Archana Pradhan Housing Affordability, Real Estate

With the unemployment rate at an 18-year low, home prices above the pre-recession peak, and lenders producing high quality mortgage underwriting, more homeowners are remaining current with their mortgage payments. As a result, the number of foreclosures nationwide have been decreasing dramatically, and the foreclosure rate is back to its pre-crisis level.

As of April 2018, the national foreclosure rate was 0.6 percent, down from almost 4 percent at its peak.[1] The judicial states, which are states that require lenders to use a judicial procedure when foreclosing, continue to have a higher foreclosure rate. [2]   

Judicial States Continue to Have Higher Foreclosure Rate

Figure 1 shows that judicial states continued to have a much higher average foreclosure rate (0.9 percent) than non-judicial states (0.3 percent) in April 2018. While the foreclosure rate was back to the pre-crisis level for non-judicial states, the rate in judicial states was slightly higher than the pre-crisis level. Judicial states had 42 percent of the nation’s mortgages outstanding, but 68 percent of all loans in foreclosure.

Share of Mortgage Outstanding as of April 2018

More than half of the loans in foreclosure in April 2018 were originated between 2004 and 2008 (Figure 2). Fourteen percent of the nation’s mortgages outstanding were originated during this period while 58 percent of all loans currently in foreclosure were originated during this time. A higher proportion of loans outstanding from judicial states were in foreclosure compared with non-judicial state loans. Of the loans made in judicial states between 2004 and 2008, 16 percent were still outstanding. Sixty percent of loans currently in foreclosure from these states were originated during this time. For non-judicial states, 13 percent of mortgages and 53 percent of loans in foreclosure were originated between 2004 and 2008.

The serious delinquency rate – the share of loans 90 days or more past due including loans in foreclosure – was 1.9 percent in April 2018, slightly down from 2 percent the previous year. The serious delinquency rate fell year over year for both judicial states and non-judicial states. The collective serious delinquency rate in non-judicial states returned to the pre-crisis rate of 1.3 percent, while the serious delinquency rate in judicial states was 2.6 percent, which is 1.5 times the pre-crisis rate of 1.7 percent. While judicial states may still have higher foreclosure rates than non-judicial, the gap between both continues to narrow.

[1] The foreclosure rate is the share of mortgages in some stage of the foreclosure process.

[2] In judicial foreclosure states, lenders must provide evidence of delinquency to the courts to move a borrower into foreclosure. In non-judicial foreclosure states, lenders can issue notices of default directly to the borrower without court intervention. This is an important distinction since judicial foreclosure states have longer foreclosure timelines, thus affecting foreclosure statistics.

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