Foreclosures Slide to Lowest Level Since 2006, Only 10% of Borrowers Underwater

Foreclosures Slide to Lowest Level Since 2006, Only 10% of Borrowers Underwater

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Foreclosures Slide to Lowest Level Since 2006While economists and homeowners continue to worry about weak housing demand and recovery, there is one bright bit of news: the number of home loans on which lenders began the foreclosure process in March fell to the lowest level in seven-and-a-half years, according to a report released this week.

Banks began foreclosure on 88,000 homes in March, which is down over 27% from a year ago and far lower than the 316,000 in March 2009, according to new research from Black Knight Financial Services.

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Black Knight also found that the percentage of mortgages that are delinquent is also falling, which means foreclosures should continue trending downward. About 2.1% of all mortgages were in some stage of foreclosure in March, which is the lowest level since 2008. Another 55% of all borrowers were at least 30 days behind on their loans but not in foreclosure, which is the lowest level since 2007. Both levels are still above pre-financial crisis levels but have fallen sharply in recent years.

Black Knight also found that 10% of borrowers are underwater, owing more than their home is worth. While this is high, this number was 30% four years ago. The percentage of underwater homeowners continues to fall as homes went through foreclosure and prices have started to rebound.

“Looking at current combined loan-to-value (CLTV), we see that while four years ago 34 percent of borrowers were in negative equity positions, today that number has dropped to just about 10% of active mortgage loans,” said Kostya Gradushy, Black Knight’s manager of Loan Data and Consumer Analytics.

The mortgage research company also found that over 50% of all loans in the foreclosure process have not made a payment in at least two years. Foreclosures take longer in judicial states, where banks must use the court system to proceed with a foreclosure. Mortgage providers have struggled in many states to provide necessary paperwork and meeting court requirements to complete a foreclosure. The average loan that completed foreclosure in March was delinquent for 955 days.

The company also examined home affordability, which is calculated as a ratio of mortgage payment to income, finding that affordability is better now than it was prior to the housing crisis. Nationally, the mortgage-to-income ratio is at 22%. In 2006, just four states were lower than this. In March, about two-thirds of the country was below this level. Indiana, Iowa, Missouri, and Michigan were the most affordable states while California and New York were the least affordable.

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