Due to increasing home prices, gross real estate owned (REO) sales prices over the past two years have made up a higher percentage of corresponding unpaid loan balances, according to Black Knight's Mortgage Monitor report for December.
In fact, REO liquidations have overtaken short sales in terms of gross unpaid balance (UPB) recovery since the fourth quarter of 2012, the report shows.
Government-sponsored enterprise (GSE) loans had the gross highest percentage of UPB recovery. What's more, these loans saw the shortest REO timelines.
Black Knight arrived at these findings after analyzing data from its new Resolution Module, an expansion of its McDash loan-level mortgage performance dataset. Specifically, the firm looked at how different liquidation methods for properties facing foreclosure could affect how much of the properties' gross UPB could be recovered by lenders.
‘Black Knight's Resolution Module combines the industry's largest loan-level and property records databases to identify millions of involuntary liquidations, allowing our clients to accurately benchmark, calculate and model future losses on underperforming mortgages,’ explains Trey Barnes, senior vice president of loan data products for Black Knight, in a release. ‘The most recent data shows that since the fourth quarter of 2012, lenders have been recovering greater gross percentages of UPB through REO liquidations than through short sales – reversing a trend that held true throughout the housing market's crisis years.
‘Of course, REO sales have additional timelines and associated costs that impact total losses and are not accounted for in this analysis,’ Barnes says. ‘That said, on average, REO properties are selling for 71 percent of the corresponding loans' defaulted UPB, as compared to just 65 percent for short sales.’
As Barnes explains, both recovery rates pale in comparison to third-party sales at foreclosure auction, where the average gross sales price is about 116% of UPB.
‘We also saw clear separation in terms of gross UPB recovery by investor groups,’ Barnes adds. ‘REO sales on GSE loans gross a significantly higher percentage of UPB than do [Federal Housing Administration (FHA)] and private/portfolio loans. GSE loans are currently averaging 75 percent gross UPB recovery through REO, whereas FHA loans see just 65 percent. Portfolio and private loans land in the middle, with gross recovery of 70 percent of UPB. In addition, REO timelines on GSE loans are shorter than both FHA and private/portfolio, averaging just 11.5 months to complete liquidation. Given the additional carrying costs lenders face while holding REO properties, the longer timelines associated with FHA and private/portfolio loans can add up.’
The report also shows a reversal of November's 11.6% increase in delinquencies. In December, delinquencies (30 days or more past due) fell 7.21% compared to November. Thus, more than half of the loans that were delinquent in November had returned to current status as of December. About 5.64% of all loans flowing through Black Knight's platform were delinquent in December, compared to 6.08% for November.
December also marked the largest monthly prepayment increase seen in high credit, portfolio loans and recent vintages, the firm reports. The nearly 25% increase was most pronounced among loans with credit scores of 720 and higher, portfolio-held loans, and those in recent vintages. The higher-credit-score group saw a nearly 30% month-over-month increase in prepayments, and portfolio loans increased more than 42%.
While 2011-2013 vintage loans saw roughly 30% increases in prepayment activity, prepayments on the 2014 vintage were up nearly 38%.
States with the highest percentage of delinquencies in December included Mississippi, New Jersey, Louisiana, New York and Rhode Island.
States with the lowest percentage of delinquencies included Montana, Colorado, Arkansas, South Dakota and North Dakota.