A vestige of emergency loss- prevention policies implemented during the COVID-19 pandemic have kept the U.S. foreclosure market funnel partially clogged. But many of the nation’s mortgage servicers expect foreclosure volume to gradually pick up speed in the final months of 2023.
That’s according to a survey of more than 50 representatives from leading mortgage servicers and government agencies conducted this past June at the Auction.com Disposition Summit. Ninety-two percent of survey respondents expect their organization’s completed foreclosure volume to increase in 2023 compared to 2022.
What is driving these expected increases? Rebounding roll rates should push more delinquent mortgages into foreclosure status while nudging more active foreclosure inventory into foreclosure auctions.
Survey respondents, on average, expect a 6.4% monthly roll rate from serious delinquency to foreclosure start in the second half of 2023. Applied to the 483,000 seriously delinquent loans (at least 90 days overdue) reported by Black Knight as of May 2023, this would translate into about 30,000 foreclosure starts per month. From January through May, foreclosure starts averaged about 29,000 per month, according to Black Knight. (There were about 527,000 seriously delinquent loans in the first five months of the year.)
The estimated 6.4% roll rate would be an increase from the 5.5% average during the first five months of the year — and well above the average roll rate of 4.7% in 2022. For further comparison, the average roll rate during the pandemic-triggered foreclosure moratorium (April 2020 to December 2021) was 0.4%, while the average roll rate in 2019, prior to the pandemic, was 8.7%.
While the roll rate from serious delinquency to foreclosure start had already started to rebound in the first half of 2023, the roll rate from active foreclosure inventory to completed foreclosure auction remained close to its pandemic-era lows. This rate averaged 2.9% during the first five months of the year, down slightly from 3.4% in 2022 and only slightly above the 2.8% average monthly roll rate in 2021, when the nationwide foreclosure moratorium on government- backed mortgages was still in effect.
According to an Auction.com analysis of data from the Mortgage Bankers Association’s National Delinquency Survey, there were approximately 943,000 mortgages that were seriously delinquent or in foreclosure at the end of first-quarter 2023. That was only slightly higher than the 916,000 loans in these categories as of first-quarter 2019. But foreclosures accounted for only 24% of this bucket in Q1 2023, compared to 44% in Q4 2019.
Moving further down the funnel, 18,000 properties went through foreclosure auction in Q1 2023, representing 8% of the 227,000 in active foreclosure inventory. By comparison, there were nearly 48,000 completed foreclosure auctions in Q4 2019, or 12% of the 406,000 in active foreclosure inventory.
Survey respondents expect an average monthly inventory-to-auction roll rate of 6.6% for the second half of 2023. This would be up from an average roll rate of 2.9% during the first five months of the year and well above the average rate of 1.7% during the foreclosure moratorium. It would also be much higher than the rate of 4.6% in 2019.
If these expectations turn into reality, it could result in a significant uptick in completed foreclosure auctions during the second half of the year. Applied to the 229,000 properties in foreclosure inventory reported by Black Knight as of May 2023, this would translate into about 15,000 completed foreclosure auctions per month — two-and-a-half times higher than the 6,000 monthly average in 2022. ●