According to RealtyTrac's 2015 Year-End U.S. Foreclosure Market Report, released Thursday, overall foreclosure activity dropped to a nine-year low in 2015 – the lowest since before the recession in 2006. The trend is the result of a 10-year low in foreclosure starts, RealtyTrac said.
“This is largely the result of much tighter loan origination standards found in previous years, primarily 2010 and forward,” Daren Blomquist, vice president for RealtyTrac, said. “That is, we are reaping the rewards of that in much lower foreclosure rates. At the same time, we are finally getting through the backlog of distressed properties that were left behind from the last housing crisis.”
Blomquist said the crisis is mostly behind us, with the exception of in some markets.
Foreclosure activity did increase in some states, notably in Texas, Oklahoma and North Dakota. According to RealtyTrac, this is an indication that lower oil prices took a toll on some housing markets in 2015.
The average time to foreclosure in the fourth quarter of 2015 declined slightly from the previous quarter. However, six states had an average foreclosure time of more than 1,000 days.
While foreclosures have, on average, declined, repossessions have, on average, increased. Bank repossessions (which refer to all lenders, including credit unions) increased in 2015, following four consecutive years of decreases.
“This doesn't mean new problems in the housing market,” Blomquist said. “Rather, it means that banks are finally getting around to dealing with some of this distress after jumping through a number of hoops in previous years that involved giving people every opportunity to avoid foreclosure.”
In other words, this is primarily the result of the “long tail” of distressed properties still remaining from the last housing crisis, which is reflected by more repossessions.
Some of the biggest increases in repossessions took place in New Jersey (up 226%), New York (up 194%), Texas (up 115%), North Carolina (up 108%) and Pennsylvania (up 61%).
“The majority of these states are judicial foreclosure states, which have lengthier and more protracted foreclosure processes, meaning that it takes lenders longer to get through the process on many of the properties that got into trouble years ago,” he said.
One big exception is Texas, where a different story took place.
“Some of the big REO increases here are related to the backlog of distressed properties, but there are new cracks in the foundation of the housing market in that state because of the weakness of oil prices,” Blomquist said. “We actually started to see increases in foreclosures in Texas around the end of 2014 and increases in repossessions in 2015.”
What can credit unions learn from these trends?
“The big takeaway is that tightening up lending standards really does work by reducing risk,” Blomquist said. “This has been proven by the numbers we are seeing here. Looking forward, I think this will create a much more favorable market in 2016 for credit unions.”
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