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  • Aided by moratorium, foreclosure filings are down 61%. But volume of seriously delinquent loans remains high.

Aided by moratorium, foreclosure filings are down 61%. But volume of seriously delinquent loans remains high.

Residential mortgage foreclosure filings hit a new all-time low in the first half of 2021.

That’s according to Attom Data Solutions LLC, an Irvine, California-based property database company. In the first six months of 2021, there were a total of 65,082 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions. That’s down 61% from the same time last year and 78% from two years ago.

The federal government’s moratorium on foreclosures was most recently extended to July 31. CARES Act mortgage-forbearance programs have also helped stave off financial distress as the pandemic battered the U.S. economy.

“Broadly speaking, foreclosure moratoriums as well as forbearance plan offerings in the wake of the Covid-19 (pandemic) have been very successful at limiting foreclosure activity,” said Andy Walden, economist and vice president of market research at Black Knight Inc., in an email.

Black Knight, a Jacksonville, Florida-based real estate analytics firm, tracks foreclosure referrals and sales on residential first lien mortgages.

Walden said there could be a temporary rise in foreclosure referral activity once the moratorium expires and forbearance programs run their course, especially among borrowers who were already delinquent heading into the pandemic.

Rick Sharga, executive vice president of RealtyTrac Inc., which is owned by Attom, said he expects a fairly soft landing once the moratorium expires. Mortgage forbearance initiatives have done what they were set out to do, he said, and more than 85% of those who have exited those programs so far have done so successfully.

There will likely be three fairly small surges in foreclosure filings in the next 18 to 24 months, with the first burst occurring after the moratorium expires.

“Before we entered the pandemic, we were already looking at lower-than-usual numbers of delinquent loans and foreclosures,” Sharga said, estimating about 250,000 loans were in some stage of foreclosure before Covid-19. “Those will probably reenter pretty quickly when the moratorium ends.”

Despite current low foreclosure numbers, many properties do have seriously delinquent loans.

About 1.7 million mortgage holders nationally were 90 or more days past due at the end of May, according to Black Knight. More than 90% are in active forbearance or loss mitigation, or have been in forbearance at some point in the past 15 months.

Among seriously delinquent borrowers, Walden said some 1.24 million are in active forbearance plans. Another 266,000 are in active loss-mitigation with servicers.

“All of this reduces the population at risk of foreclosure when moratoriums expire,” Walden said. “In addition, the (Consumer Financial Protection Bureau) has put in place a variety of controls effective at the end of August to further mitigate near-term foreclosure risk.”

He said nearly 875,000 of the 1.9 million active forbearance plans are set to come to an end by late 2021, particularly in September and October.

Sharga said homeowners facing distress may be able to sell at a profit because of recent surges in home prices, instead of losing them in a foreclosure.

Five out of 220 U.S. metros analyzed by Attom saw a year-over-year uptick in foreclosure filings, including:

  • Tyler, Texas, up 88%
  • Brownsville, Texas, up 21%
  • Springfield, Illinois, up 19%
  • Sioux Falls, South Dakota, up 9%
  • Lake Charles, Louisiana, up 5%

States with the highest foreclosure rates in the first half of 2021 included Delaware, Illinois, Florida, Ohio and Indiana.

But, Sharga said, there’s not a significant underlying economic reason why some geographies have seen increases. Some state and local governments have allowed servicers to foreclose on vacant or abandoned properties, which might account for a small uptick, Sharga said.

According to Attom, 36,742 U.S. properties started the foreclosure process in the first six months of 2021, a 63% drop from H1 2020 but a 14% jump from the second half of 2020.

In the first half of 2021, lenders foreclosed on 9,730 U.S. properties, Attom says. That’s down 74% from a year ago, and is the lowest six-month total since Attom began tracking the data in 2005. South Dakota was the only state that posted a year-over-year increase in REOs, or real estate owned by a lender, in the first half of 2021, with 17 REOs, a 21% increase.

There are two potential areas of vulnerability once government programs end: single-family rental units owned by individual investors and the Federal Housing Administration loan portfolio.

“(FHA) loans are more delinquent than conventional loans or ones in private portfolios,” he said. “Those tend to have less equity and capital, so as the government programs expire, they’re probably the ones at the greatest risk of going into foreclosure.”

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