Attom Data Solutions recently reported that foreclosure activity picked up in October. Nationally, though, foreclosures and delinquencies have stayed at or near record lows. Todd Teta, chief product officer with the company, spoke with Scotsman Guide News about where the trend is headed.
Why did foreclosures pick up in October?
We’ve taken a look at the last five or six years of the data in October. Generally we see tick ups from a seasonality standpoint. Oftentimes servicers and lenders try to file ahead of the holiday season, knowing that nobody wants to start a foreclosure during the holidays. It’s not good PR. It’s a pretty consistent trend over the last five or six years. When we look at the data, it ticks up in October and then we see a little bit of a slowdown in November and December.
Are foreclosures and delinquency at the lowest point ever?
We’re probably at a 16-year low. We don’t go back into the ’90s and ’80s, so I can’t speak to that, but it is the lowest we’ve seen.
Why are foreclosures so low?
If you think what happened [between 2008-12], a lot of bad credit scenarios, traditional distress scenarios, were worked through and that’s when we had the really high foreclosure rates even into 2013. In parallel, what was happening [between 2012-14] was that home prices were accelerating, so any loans that were originated had natural equity that was growing. The credit quality went way up as well in that time period, so we just don’t see a lot of loans from that [2013-15] period going into default.
Given that home prices have risen so high, first-time homebuyers are taking on a lot of debt. Is this something that might cause foreclosures to spike in a downturn?
That could be a driver of foreclosures in the next, say, two to three years, if we have a major price correction. We generally say 5% price corrections are not going to cause a significant spike in foreclosures, but anywhere above a 10% correction would. We don’t have any data to tell us that that’s going to happen but, if it did, you know, we would certainly see increased foreclosures, mostly in loans that were originated in the last two to three years.
Lots of investors and mortgage originators specialize in distressed properties. Given the low foreclosure rate now, is there any market to speak of?
There are still quite a few real estate owned properties (REOs); around 14,000 nationally were repossessed in October. Those are homes that are going into the stock, and somebody is going to buy them from the bank. We are seeing that the number of flips are down. The return is down and the REOs are down, but they’re still there.
When do you expect foreclosures to rise off this low?
We don’t see anything happening between now and the election. We believe in late 2020 or 2021, if a recession kicks in, we’ll see foreclosures tick up. We don’t model individual loans and how they might perform, but just directionally, we would say that [an uptick in foreclosures] is a highly likely scenario.