HOUSINGNEWS REPORT
ENCORE PERFORMANCE
Unfortunately, the real estate boom turned out to be a house of cards. Far too many unqualified borrowers purchased overvalued homes with loans that turned out to be ticking time bombs. What happened next — in retrospect — was unsurprising, but still historically unprecedented: the largest wave of foreclosure activity ever in the U.S. housing market. As chronicled by ATTOM Data Solutions (known at the time as RealtyTrac), foreclosure activity soared. Historically, about 1 percent of loans in a given year are in some stage of foreclosure; another 4 percent are delinquent, but not yet in foreclosure. At the peak of
what happened to millions of other loans that had become distressed: they were modified, in an attempt to help borrowers retain homeownership. Second Act: From Non-Performing to Re-Performing While the number of foreclosures was staggering, the number of foreclosures prevented by loan modification programs was equally remarkable. Between the second half of 2007 and 2017, over 8.4 million permanent loan modifications were completed, either through the government’s Making Homes Affordable Program (HAMP) or mortgage servicers’ proprietary modifications. In addition, lenders provided borrowers with other workout plans — repayment plans, payment reductions, forbearance programs, etc. — on another 16.4 million loans. If this were a Hollywood screenplay, we could wish our actors a “happily ever after” and exit the movie theater. Unfortunately, many of the borrowers who held these modified and re- worked loans subsequently became delinquent again, and some defaulted, and fell back into foreclosure. This created a large number of what the industry refers to as non-performing loans (NPLs). As the U.S. economy slowly recovered from the Great Recession, investors began to purchase portfolios of these NPLs, mostly from large financial institutions or government agencies looking to get the loans off their books. These loans were purchased at a discount, and represented an attractive investment opportunity for companies who knew how to manage them.
the crisis, about 4 percent of loans were in foreclosure and between 11 and 12 percent were delinquent. This, remember, at a time when the number of homeowners — and the number of active mortgages — was at an all-time high. So what ultimately happened to all of these loans? According to a report from Hope Now, nearly 5.3 million of those loans were ultimately foreclosed on between 2009 and 2016, with the peak happening in 2010, when there were almost 1.1 million foreclosure sales. 1 These numbers, and the financial and human damage they caused, were widely reported. Less-widely reported was
“Unfortunately, the real estate boom turned out to be a house of cards. Far too many unqualified borrowers purchased overvalued homes with loans that turned out to be ticking time bombs. What happened next — in retrospect — was unsurprising, but still historically unprecedented: the largest wave of foreclosure activity ever in the U.S. housing market.”
U.S. FORECLOSURE ACTIVITY
FORECLOSURE STARTS
FORECLOSURE COMPLETIONS (REO)
300,000
250,000
200,000
150,000
100,000
50,000
0
JAN 2006 JAN 2008 JAN 2010 JAN 2012 JAN 2014 JAN 2016 JAN 2018
23
MAY 2018 | ATTOM DATA SOLUTIONS
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