Banks are playing catch up formally repossessing homes in judicial foreclosure states as they unwind a back-log of foreclosures from the robo-signing scandal. The foreclosure inventory remains at near all-time highs with 4.12% of all U.S. homes with mortgages in the foreclosure pipeline, according to Lender Processing Services.
However, new problem loan rates showed an improvement for the eighth consecutive month, reaching only 1%, a low that hasn’t been seen since July 2007, substantially off its January 2009 peak of 2.92%.
The nation’s five largest banks agreed to a $25 billion settlement with all but one state attorneys office in a landmark case in which lenders foreclosed on as many as 4.5 million homeowners without proof of legal ownership in the robo-signing scandal in judicial foreclosure states, where foreclosures require court approval.
“There’s a stark contrast in foreclosure inventories between judicial and non-judicial states,” said LPS analytics vice president Herb Blecher. Judicial foreclosures represent 6.5% of all mortgages under foreclosure, while only 2.5% of mortgages in non-judicial states are in the foreclosure pipeline.
“Both these figures are significantly higher than the pre-crisis average of 0.5%, but it is worth noting that the average year-over-year decline in non-current loans for judicial states is less than one percent, whereas in non-judicial states, it’s down 7.1 percent,” said Blecher.
About 53% of loans in foreclosure in states where judicial foreclosures are required have been delinquent more than two years, compared to slightly more than 30% of loans in non-judicial states. The May data also shows that after a sharp seasonal decline, delinquencies stabilized in May to compose 7.2% of U.S. home mortgages.
Across the nation, foreclosure sales, which mark the end of the foreclosure process increased more in non-judicial states. In those states, 6.46% of the existing foreclosure inventory progressed to formal foreclosures in May compared to just 2.14% of the inventory in judicial states.