Foreclosure Activity Rises 28% in January
Lender Processing Services released its mortgage monitor report yesterday, showing that foreclosure activity rose dramatically in January. Interestingly, this precedes the AG/mortgage servicer settlement, which broke in early February. The AG/servicer settlement has dragged on now for almost a year and a half, and the complete, final agreement was still in progress at the time of the early-February media blitz. Thus, we read this increase as a change in servicer behavior as they had more confidence in what the new standards and penalties would be. There is a degree of seasonality in foreclosures (for example, many servicers enforce a moratorium around the holidays in December), which increases the apparent MoM increase, but the spike suggests that servicers' behavior has shifted.
Going forward, we expect that foreclosures will continue to rise from depressed October 2010 - December 2011 levels. There are several implications to keep in mind:
- Home prices will come under pressure - foreclosure sales are a major driver of declines in home prices, since foreclosed homes generally sell at a significant discount. The Case-Shiller Index includes foreclosure sales in its models, as does the primary Corelogic HPI.
- Foreclosures are correlated with higher bankruptcies. If this relationship remains in place, then bankruptcies will also increase. That's negative for credit card issuers, who charge off bankrupt customers as soon as they file (so these losses can hit NCO without ever spending time as delinquent balances).
MBA Purchase Applications Rise Modestly
Last week MBA Mortgage Purchase Applications rose 2.1% to a level of 169. Today's print puts purchase applications 13% lower than a year ago. In contrast, refinance applications fell 2.0% last week. Mortgage rates rose on Thursday of last week but retreated thereafter, ending yesterday at 3.86%.
Joshua Steiner, CFA