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Distressed Mortgages Are Waning

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Mortgage data shows U.S. housing foreclosures generally on the decline, to the point that they’re not much of a factor in most of the U.S. housing market right now. But as the mortgage crisis grows smaller in the rearview mirror, opportunities for struggling homeowners are also winding down. Things are changing on the investment side of things, too: As distressed property inventories decrease, prices are likely to go up. Whether you’re experienced with foreclosures, thinking of buying a distressed property for the first time or struggling with your own mortgage woes, here’s what you need to know about the state of foreclosures in the U.S.

U.S. foreclosures are declining, but not everywhere

The share of distressed mortgages was 4.36% in the second quarter of 2018, down from an all-time high of 11.54% in the first quarter 2010, according to the latest National Delinquency Survey from the Mortgage Bankers Association. But the improvement goes back further: The number of noncurrent mortgages was at a 12-year low in July 2018, according to data analytics firm Black Knight. And according to ATTOM Data Solutions, another firm that analyzes the real estate market, the national foreclosure rate has been below the 2006-2007 average for the last seven quarters.

Not all areas follow that trend, though. Of the 219 metro areas ATTOM analyzes for its foreclosure reports, 26 of them (12%) had increases in foreclosures in the first half of 2018 when compared with the same time period in 2017. Areas with jumps in foreclosure activity included Houston (up 10%), Dallas-Fort Worth (11%), Phoenix (5%), Cleveland (4%) and Indianapolis (2%).

Implications for buyers and sellers

In the majority of the country, where foreclosure activity is on the decline, distressed properties aren’t much of a player in the economy.

“Foreclosure rates are not at a level where they impact the housing market,” said Tendayi Kapfidze, chief economist at LendingTree.

Just 2.3% of mortgages are seriously delinquent, meaning they are 90 days or more past due. That’s down 31 basis points from last quarter and down 19 basis points from last year, according to the MBA.

Lower foreclosure rates are good for homeowners because delinquencies can hurt neighborhood property values.

The MBA noted that there are some concerns that may put upward pressure on delinquency rates in the near future. These include a difficult recovery for some borrowers in states hit hard by the 2017 hurricanes, including Texas and Florida, as well as aging loan portfolios, higher mortgage interest rates that limit a borrower’s refinance options, higher energy prices, housing affordability at a time of limited supply and the easing of credit overlays as mortgage market conditions have changed.

So while foreclosure starts are down significantly throughout the country as a whole — 191,914 properties started the foreclosure process at the first half of 2018, and that figure was at 1,074,471 in the first half of 2009, according to ATTOM — foreclosures remain something to watch at a local level. In fact, 22 states saw increases in foreclosure starts in the beginning of the year, compared with the same time last year, even though foreclosure starts across the U.S. declined 8% within the same period.

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Programs for homeowners with distressed mortgages

Homeowners having problems meeting their monthly mortgage payments can find help. Similarly, there are resources to aid homeowners stuck in an underwater mortgage — where the amount they owe is greater than the value of the house.

  • HARP
    The Home Affordable Refinance Program helps struggling borrowers with little or no equity to refinance into a more affordable mortgage without new or extra mortgage insurance. HARP is available to borrowers with loan-to-value (LTV) ratios of at least 80% and who have limited delinquencies over the 12 months prior to refinancing. Note: The deadline for a HARP refinance is Dec. 31, 2018.
  • Hardest Hit Fund
    This program was created by the Obama administration in 2010 to aid homeowners in certain parts of the country hit hardest by the recession that began in 2007. In 2016, an additional $2 billion was set aside for HHF-designated states to continue foreclosure prevention and neighborhood stabilization efforts. Participants have until the end of 2020 to use funds from this program.
  • Loan modifications
    The goal of loan modification is to lower the monthly payment to a level the borrower can afford. “Affordable” mortgage payments are defined as 31% of the borrower’s monthly gross income. Lenders may be willing to work with the borrower on a loan modification, or the borrower can seek outside help. One such resource is HAMP, the Home Affordable Modification Program. HAMP works with lenders to lower a homeowner’s payments. Families in this program typically reduce their monthly payments by an average of $530.
  • Mortgage counseling
    Seek assistance from a mortgage counselor approved by the U.S. Department of Housing and Urban Development. Working with an expert can help you understand your situation and the options best suited for your specific needs.

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