Distressed homeowners are more frequently falling out of the foreclosure process before an auction occurs in the post-COVID world. For those who cycle back in, the time to complete the scheduled foreclosure is nearly doubled. This extra time is helping to reduce the rate at which these turn into completed foreclosure auctions, but it is also eroding home equity for many distressed homeowners.
For homeowners who are not able to avoid foreclosure in the longer run, eroding equity means walking away with less cash to cover replacement housing costs. An Auction.com analysis of foreclosure auction data shows properties that completed foreclosure auctions in 2023 took an average of 192 days from the first scheduled auction date to the completed auction date, nearly double the 99 days in 2019 and up 175% from the 70-day average between 2015 and 2019.
The higher rate of recycled foreclosure auctions — and the extra time for distressed homeowners that comes with that higher rate — is largely a function of expanded foreclosure prevention policies coming out of the pandemic, lingering foreclosure prevention funds allocated during the pandemic and high levels of home equity boosted by a sharp rise in home prices during the pandemic.
The extra time to foreclose is helping to reduce the rate at which scheduled foreclosure auctions turn into completed auctions. The Auction.com analysis shows 42% of properties scheduled for foreclosure auction in 2023 made it to a completed foreclosure auction, down from 58% in 2019 and down from an average of 67% between 2015 and 2019.
One glaring exception to this trend is 2021, when the time to foreclosure auction jumped to an all-time high and the completed foreclosure auction rate jumped to more than 70%. This anomaly is likely the result of extremely low foreclosure auction volume in 2021, during which a nationwide foreclosure moratorium on government-backed mortgages was in effect on all but vacant properties.
Other evidence that extra time has helped many distressed homeowners avoid foreclosure is forbearance exit data from Intercontinental Exchange (ICE), which shows 7.5 million out of 8.7 million total mortgages that entered COVID-related forbearance (86%) were now performing or paid off as of November 2023. Only 93,000 (1%) forbearance exits have resulted in a distressed liquidation (completed foreclosure auction).
Data from ICE shows the home equity cushion — while still quite well-padded — is starting to shrink. As of September 2023, 20% of seriously delinquent borrowers (those 90 or more days past due on mortgage payments) were underwater, owing more on the mortgage than their property’s estimated value. That was up from about 10% underwater in September 2021, near the peak of the pandemic housing boom.
An Auction.com analysis of the change in equity for homes cycling in and out of scheduled foreclosure auction shows that while home price appreciation impacts the rate at which distressed homeowners lose equity, that lost equity occurs even in a rapidly appreciating market. Properties with a scheduled foreclosure auction date between 2021 and 2023 lost equity at a rate of $1,224 a month between the first scheduled foreclosure auction and the most recent scheduled foreclosure auction. The lost equity rate was significantly higher in 2022 ($2,130 a month), when home price appreciation slowed dramatically. But the lost equity trend occurred even in the rapidly appreciating market of 2021, albeit at a much slower pace of $636 in lost equity per month. ●
