ByWilliam R. Emmons
The share of Eighth District mortgages in foreclosure or seriously delinquent but not yet in foreclosure—defined as a borrower having missed at least three consecutive mortgage payments—peaked in January 2010 at 6.5 percent (see chart). The comparable national figure peaked a month later at 8.6 percent. The share of serious delinquencies and foreclosures in the Eighth District and nationwide then declined for several months, raising the possibility of fewer households losing their homes during 2011.
In Foreclosure or at Least 90 Days Delinquent But Not in Foreclosure
Unfortunately, recent data suggest the inventory of in-foreclosure and near-foreclosure mortgages may be heading up again. After hitting a low point of 5.5 percent in September 2010, the Eighth District share moved up to 5.7 percent in December 2010, remaining at that level through February 2011. The national rate also ticked up in January and February 2011 to 7.6 percent.
It's possible that the recent reversals of the downward trends are merely a blip—a temporary interruption of a continuing downward trend due to unusual circumstances or data-collection problems that will disappear soon. However, there are several reasons to believe that serious mortgage distress will continue through 2011.
First, trends in the data have, in the past, been very persistent. The share of mortgages in or near foreclosure in the Eighth District has increased or stayed the same each month from July 2010 to February 2011, so it's likely that pattern will continue. Second, and more importantly, the underlying fundamentals appear to be weakening. The unemployment rate in the counties that constitute the Eighth District has drifted up a bit since early 2010, while house prices in many parts of the District remain very soft (flat or declining).
The areas hardest hit by serious mortgage delinquencies are the Eighth District portions of Mississippi, Tennessee, Indiana and Illinois (see map). Among our branch cities, the Memphis and St. Louis metropolitan areas show the highest concentration of mortgages in or near foreclosure.
The most important factors affecting households' ability to service their mortgages and retain their homes are job and income growth along with stable or rising house prices. If the nationwide economic recovery gains traction this year, as is widely expected, it may be possible for Eighth District foreclosure trends to turn positive again before the year is out.
At Least 90 Days Delinquent or in Foreclosure, February 2011