REO discounts highest in the Northeast, Rust Belt regions

Black Knight’s Mortgage Monitor is a monthly analysis that overviews delinquencies, foreclosures, prepayments, home equity line of credit (HELOCs), mortgage originations and REO discounts.

From a national perspective, the mortgage delinquency rate jumped almost 5 percent between June and July, Black Knight says, which is likely due to the fact that the month ended on a Sunday — impacting payment processing for the final two calendar days of the month. Annually, delinquencies are down 3.38 percent.

Foreclosure starts dropped 12 percent month-over-month in July. The monthly total of 61,300 was the lowest number of starts per month Black Knight has seen in over a decade. It was also the lowest month for first-time foreclosure starts since 2000.

Although the volume of refinancing candidates increased because of near-record low interest rates, prepayment rates dropped 12 percent during the month. Active foreclosures continued to drop, falling 20 percent in the first half of the year. July’s volume of 550,000 was the lowest seen since July 2007.

HELOC delinquency rose for four consecutive months through July, which hasn’t been a steady trend. Prior to the late spring and summer, HELOC delinquency had only increased once in four years. HELOC delinquencies were 8 percent higher than July 2015.

Negative equity for HELOC borrowers reached 18 percent. Seven percent of second lien HELOCs are in negative equity, with 2 percent completely underwater.

First lien mortgage originations were the highest in the second quarter since the same period in 2013. Purchases, which made up 57 percent of originations, and refinancing fueled the $518 billion in volume.

Distressed sales comprised 7 percent of all residential activity in the second quarter, the lowest since 2007. Nonetheless, this is double from normal market conditions, Black Knight says.

Looking local

REO discounts in the past six months were concentrated in the Northeast and Rust Belt, the report shows. In past reports, Black Knight showed the Northeast as the last to normalize distressed mortgages.

New York (40 percent) placed third, with New Hampshire having the second-highest average REO discount, at 41 percent. Ohio was no. 1, at an average 44 percent discount. Texas was among the lowest average REO discounts, at 14 percent compared to a traditional sale.

In New York, a judicial foreclosure state, delinquencies reached 4.8 percent in July while foreclosures hit 3.2 percent of mortgage holders. The share of residents who are not current on their payments dropped 12 percent year-over-year, reaching 8 percent in July.

Texas’ delinquency rate was 5.6 percent. Only 0.5 percent of homeowners were in foreclosure and 6.1 percent are not current on mortgage payments – down 3.4 percent since July 2015.

California’s REO discount was an average 17 percent. Only 3 percent of Golden State homeowners were in delinquency in July. A marginal 0.4 percent of California mortgage holders faced foreclosure. Meanwhile, 3.4 percent were not current on mortgage payments, which is down 6 percent year-over-year.

Florida’s REO discount was 23 percent, on average. The delinquency rate in Florida was 4.7 percent, while foreclosures reached 1.9 percent of homeowners. Nearly 7 percent of homeowners were not current on their mortgage payments in July, representing a drop of over 18 percent annually.

In Illinois, REO discounts hit an average of 31 percent. Delinquencies represented 4.3 percent of mortgage holders. Over 1 percent of them faced foreclosure. The non-current on mortgage share dropped 11.3 percent year-over-year, reaching 5.5 percent of Illinois homeowners in July.

Washington D.C. posted a delinquency rate of 3.3 percent and a foreclosure rate of 1.8 percent. Over 5 percent of homeowners are non-current on mortgage, which is a 9 percent drop since last year.

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