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Lowest Foreclosures Since Housing Market Apex

In the depths of the housing crisis, home foreclosures were disturbingly common and notorious for devaluing neighborhood properties. Now, most of the country is enjoying the opposite.

In 2017, the U.S. has seen the lowest level of foreclosure filings since November 2005.

Current Foreclosure Trend

Reported foreclosure filings including auctions that are scheduled, properties repossessed by the bank, and mortgages on default notice.

ATTOM Data Solutions’ April U.S. foreclosure market data report (encompassing data from 90% of the American population) showed foreclosure filings down 7-percent month-over-month and down 23-percent year-over-year making April account for around 77K foreclosure filings—the lowest foreclosure filing rate since November 2005. The number of properties that began the foreclosure process were also down in April: 6-percent month-over-month and 22-percent year-over-year.

In September, Boston’s foreclosure rate was 1 in every 4,526 homes. Pre-foreclosures in Boston were down 19 percent month-over-month and 5.6 percent year-over-year in September. Also, of Boston’s total housing units, a mere 0.02-percent were in active foreclosure, which was lower than total housing units in active foreclosure in September in Massachusetts at 0.06-percent and nation-wide at 0.05-percent.

New Normal and New Standards

Foreclosure filings are not simply improving; they are establishing a new norm for the amount we expect to see. Ten years ago, at the time of the recession, mortgage lenders had exceptionally low standards. Many experts suggest that mortgage lenders' lax, and nearly non-existent selection process, preceding the recession caused the extremely high default rates and Americans in home-foreclosure.

Now, mortgage lender standards are strict and require high credit scores. The goal was to prevent another housing bubble from inflating, popping, and resulting in recession. So far, the methodology has worked.

With the steady incline in home prices, homeowners today have home equity as a fail-safe. If a homeowner were to face a financial peril, they could refinance their home via their increased home equity, or place the home on the market with high potential for making a profit, to eliminate the chance of defaulting.

Not Trending with the New Normal: Reverse Mortgage Foreclosures

During the recession, around 2008, people were doing everything they could to avoid facing home foreclosure. Mortgage lenders were suggesting that homeowners with limited options, especially senior citizens, borrow against their home equity with a reverse mortgage.

Reverse mortgages are high-risk and generally not advised during good economic times. Ten years post-recession, nationwide, the number of homeowners facing foreclosure due to their reverse mortgage is growing.

Reverse mortgage loans have complex terms and housing specialists indicate many borrowers have been unable to keep-up with the various property charges and requirements associated with the loans.

The Department of Housing and Urban Development (HUD) insures the majority of reverse mortgages, but they haven’t utilized a regular tracking system and cannot provide the number of homes in the program that are experiencing foreclosure. Last fall, there were an estimated 90K homes in the program, owned by seniors, facing foreclosure.

The Federal Housing Administration noted a drain on their insurance fund due to the reverse mortgage program. In the fall of 2016, the reverse mortgage portfolio plummeted to value of $-7.7B. A spokesperson with HUD provided that the department is working to reduce defaults by tightening their criteria, hopeful that improvement could be ahead.

Furthermore, other pockets across the nation fail to experience relief from home foreclosure.

Some Metros and States Not Seeing Low Foreclosure Rates

Some parts of the country aren’t experiencing the low foreclosure rate trend. The highest levels of foreclosure filings are occurring in states like New Jersey, Delaware, Maryland, Connecticut, and Illinois and metropolitan areas like Atlantic City, NJ, Fayetteville, NC, Trenton, NJ, Rockford, IL, and Philadelphia, PA. Year-over-year, foreclosure rates are up three-percent in Massachusetts.

Other cities are defying the low foreclosure filing trend with increased year-over-year foreclosure rates including St. Louis up 12-percent, Houston up seven-percent, and Boston up three-percent.

There could be a rational reason for some areas experiencing increasing foreclosure filings or year-over-year rates like lenders selling these properties in an effort to meet their quarterly goals due to the tight market.

Overall, the country is seeing improved employment and home values, and a declining trend in foreclosure filings.

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