From Inman News:
It’s been a long haul since the housing bubble burst in 2006 but there’s growing evidence that the foreclosure crisis is quickly winding down even as a stubborn batch of bad loans originated during the height of the housing bubble continues to pollute the real estate ecosystem.
First, let’s look at evidence the foreclosure crisis is truly over.
U.S. foreclosure activity dropped to a 74-month low in April, with 144,790 properties with foreclosure filings. Although still about twice as high as the average 75,000 per month in 2005, it was 60 percent below the monthly peak of more than 367,000 in March 2010.
Given the much tighter lending standards of the past few years and recently rising home prices, the downward trend in new foreclosure activity at the national level should continue for the foreseeable future, until monthly foreclosure activity is back to that “normal” level of about 75,000 properties with foreclosure filings a month.
The inventory of homes stuck in the foreclosure process was still up 4 percent in May from a year ago, caused primarily by elongated foreclosure timelines in judicial foreclosure states, but those inventory numbers should also turn a corner and start heading down in the relatively near future at the national level — although there will certainly be some states with longer foreclosure timelines where this trend will lag.
Loans originated during the most inflated years of the housing bubble account for the bulk of foreclosure inventory in 2013, even seven years after the bubble burst. Nearly three-fourths of loans in foreclosure (74 percent to be exact) as of May were originated between 2004 and 2008, according to RealtyTrac data, while 12 percent were originated after 2008 and 14 percent were originated before 2004.
At the current pace of bank repossessions (a little more than 40,000 a month so far this year) and third-party foreclosure sales (a little less than 30,000 a month so far this year), the approximately 850,000 loans now in the foreclosure process will be flushed out in about a year. It will take an additional six months for the bank-owned homes to be sold to third parties.
Unfortunately, loans already in the foreclosure process do not represent the totality of potentially toxic loans that need to be cleaned up. RealtyTrac data show that 37 percent of all outstanding mortgages not in foreclosure were originated between 2004 and 2008, representing more than 14 million loans. Furthermore, based on an 80 percent sample where interest rate data was available, approximately 88 percent of the 14 million at-risk loans have an interest rate of 6 percent or higher — indicating that the homeowners attached to those loans could benefit from a refinancing but have not done so.