FACTS ON POLICY: Mortgage Foreclosure Rates

October 7, 2008

Foreclosure filings have more than doubled during the past year.

Broadly speaking, there are three metrics that can be used to measure the health of the mortgage market.

The delinquency rate is the percentage of mortgage loans that are past due (delinquent) but have not entered into foreclosure proceedings.

Once a mortgage has been past due for longer than a specified duration (e.g., 90 days, but varies from state to state), the loan is declared to be in default, at which time the bank will initiate a legal process to repossess the home. The start of this process is called a foreclosure filing (or foreclosure start).

The general foreclosure rate includes all loans that are somewhere in the foreclosure process (also referred to as foreclosure activity). The foreclosure process ends when the lending institution has reacquired the title to the property through an auction or sale.

In the second quarter of 2008, 6.4 percent of mortgage loans were delinquent, 1.1 percent of mortgage loans had foreclosure proceedings initiated on them, and 2.8 percent of mortgages were at some stage in the foreclosure process.

At the end of the second quarter of 2008, foreclosure starts in the United States totaled 739,714, an increase of 121 percent compared to one year ago. Approximately 1 out of every 171 households received foreclosure filings during the second quarter.

Although foreclosure totals and rates are at record highs, they tend to be concentrated in a small number of states. Filings in two states—California and Florida—accounted for 42 percent of all foreclosure starts in the second quarter of 2008.

In 2007, more than half of the foreclosure starts were on subprime loans, although subprime loans constituted only 24 percent of total loans.

Figure 1
Foreclosure start rate, unseasonally adjusted, quarterly data, 2000 Q1–2008 Q2 (in percent)

Sources:

• U.S. Government Accounting Office, “Home Mortgage Defaults and Foreclosures—Recent Trends and Associated Market Developments”(October 10, 2007).

• Ben Bernanke, Federal Reserve Board, speech: “Reducing Preventable Mortgage Foreclosures”(March 4, 2008).

• Mortgage Banker’s Association, press release: “Delinquencies and Foreclosures Increase in Latest MBA National Delinquency Survey”(September 5, 2008)

• Mortgage Banker’s Association, “Lender’s Cost of Foreclosure” (May 28, 2008).

• Realty Trac, “Foreclosure Activity up 14 percent in Second Quarter”(July 2008).

Quiz Source Information:

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