Mortgage Markets: A Long Road Home

In 2009, the Federal Reserve Bank of Richmond began reporting on the health of the housing market and the composition and performance of mortgage markets throughout the District in a series of reports called Mortgage Performance Summaries (NOTE: these reports were discontinued and removed from the website on January 8, 2018). These summaries were meant to provide up-to-date and detailed information on mortgage market conditions. The most recent editions cover data through the first quarter of 2016.

One way in which the reports measure the performance of mortgage markets is by looking at the percentage of mortgages that are either in foreclosure or real estate owned (REO properties are those that are in the lender's possession due to foreclosure or forfeiture) using mortgage data from McDash Analytics-Black Knight Financial Services. The published reports detail these rates at the zip code level; however, the focus of this post is how markets are performing at the county level.

How much have mortgage markets improved in recent months, and how do current foreclosure and forfeiture rates compare to those reported prior to the start of the housing crisis?

The below video shows changes in the percentage of mortgages in foreclosure or REO from January 2005 to March 2016. The left panel shows the percentage of foreclosure and REO mortgages combined by county, while the right panel shows each percentage separately but for the entire Fifth District.

As the animation shows, in January 2005 the percentage of mortgages in foreclosure for the entire Fifth District was approximately 0.4 percent, and the share in REO was around 0.2 percent. The share of mortgages in foreclosure began to increase prior to the start of the recession and continued to rise after the recession ended in June 2009 to a peak of about 3.0 percent in August 2012. The percentage of mortgages in REO, on the other hand, peaked at around 0.9 percent in November 2010, then fell sharply, and rose again to almost the same peak in January 2014 before starting to decline once again. In March 2016, the foreclosure rate was about 1.0 percent for the entire Fifth District, which was considerably lower than the peak of 3.0 percent; however, the REO rate has remained somewhat elevated and currently stands at around 0.8 percent.

At the county level, the combined share of mortgages in foreclosure or REO was less than 2.0 percent in a majority of counties across the District in January 2005. By the time the recession ended, a majority of counties were reporting rates greater than 2.0 percent and by the time the Fifth District foreclosure rate peaked in August 2012, many counties were reporting a combined rate between 4.0 percent and 6.0 percent. A few counties, mainly in parts of Maryland and South Carolina, reported higher rates—upward to 11.0 percent. After that point, conditions began to improve rapidly, and by March 2016 a little more than half of the counties in the Fifth District were again reporting rates less than 2.0 percent.

Interestingly, just as the right panel of the above video showed, when foreclosure and REO rates are separated, a similar trend can be seen at the county level.

The above video shows how county foreclosure rates returned to about the same level in March 2016 as they were in January 2005. Meanwhile, the share of mortgages in REO was more elevated in March of this year than it was back in 2005. In particular, several counties in Maryland, the western portion of Virginia, and the southern part of West Virginia still had a relatively high number of mortgages that were real estate owned in March. In South Carolina, however, there remained a fair number of counties that reported foreclosure rates between 2.0 and 4.0 percent. In a few cases, like in Dickenson County, Va., for example, both the foreclosure and REO rates remained elevated.

Despite a few remaining pockets of weakness, the overall trend in mortgage conditions is one of continued improvement in recent years. Foreclosure rates, in particular, now closely resemble rates reported prior to the onset of the most recent recession.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.