Foreclosures rise as pandemic relief expires

Foreclosures ticked up in the first quarter as pandemic-related consumer protections expired and lenders increasingly took steps to repossess homes. 

Roughly 24,000 people had new foreclosures listed on their credit reports in the quarter, up from about 9,000 in the fourth quarter, according to a Federal Reserve Bank of New York report released Tuesday. 

Foreclosures are still about a third of what they were before the pandemic ⁠— and far below the astronomical levels after the mortgage meltdown of more than a decade ago. But the uptick reflects a return to more normal conditions after a federal moratorium effectively prohibited foreclosures on many homeowners for much of the pandemic.

The moratorium expired on July 31, and additional relief from the Consumer Financial Protection Bureau helped delay the foreclosure process from kicking off until this year.

To stem a rush of foreclosures, states have used federal stimulus money for programs to help homeowners in financial duress. Fannie Mae and Freddie Mac are requiring servicers to suspend foreclosures for homeowners who have applied for state assistance, and federal officials are urging servicers to take similar steps on other federally backed mortgages.

But with state programs just getting off the ground, it’s a “crucial time” for U.S. officials to ensure the programs are effective and at-risk borrowers can avoid foreclosure, said Steve Sharpe, an attorney at the National Consumer Law Center who focuses on mortgages.

In March, payments on about 694,000 properties were 90 or more days past due but were not in foreclosure, according to the mortgage analytics firm Black Knight. That was down 12% from 787,000 properties in February, but the figures remain elevated compared to prepandemic levels.

CFPB officials have encouraged mortgage servicers to participate in state foreclosure assistance programs, which are voluntary for lenders. Lorelei Salas, the bureau’s assistant director for supervision policy, wrote in a March blog post that the programs “can help homeowners avoid foreclosure,” but only if mortgage servicers work with state agencies and housing counselors work with borrowers.

“The CFPB remains focused on preventing avoidable foreclosures to the maximum extent possible and expects mortgage servicers to do the same,” Salas wrote. 

Foreclosures are likely to keep rising this year but won’t reach normal levels until at least the end of this year, unless the economy “takes a significant turn for the worse,” Rick Sharga, executive vice president of market intelligence at ATTOM, said in a recent press release on foreclosure trends. The company is a unit of RealtyTrac, an online marketplace for foreclosed and distressed properties.

The company’s research shows one in nearly 1,800 houses nationally had a foreclosure filing in the first quarter. Rates are highest in Illinois and New Jersey, where one in about 790 houses had a foreclosure filing. Metro areas with large foreclosure rates include Cleveland, Ohio; Atlantic City, New Jersey; Jacksonville, North Carolina; and Rockford, Illinois.

The New York Fed’s foreclosure data was part of its quarterly report on household debt and credit, which is based on a nationally representative sample of anonymized debt and credit records from the credit bureau Equifax.

The report found household debt levels rose by 1.7% to $15.84 trillion in the first quarter of the year. Higher mortgage, auto loan and student loan balances helped drive the increase, while credit card balances slipped by $15 billion in the quarter, in line with the typical seasonal trends.

It also detailed a continued decline in mortgage refinancing as interest rates began rising rapidly this year. Mortgage originations tied to refinancing totaled $424 billion in the first quarter, down from $498 billion a quarter earlier and the peak of $726 billion in the second quarter of 2021.

“The recent refinancing boom is effectively over, given the recent increases in mortgage rates and the fact that many borrowers who would benefit from a refinance have already done so,” New York Fed officials wrote in a blog post on the mortgage numbers.

Mortgage lenders ranging from Wells Fargo to Rocket Cos. have cut workers in recent weeks as refinance activity dips down. The latest U.S. jobs report found employees at nonbanks active in housing finance fell to 422,100 in April, down about 4,000 jobs from March; it was the first consecutive monthly decline since 2019.