Nearly nine in 10 (86%) mortgage servicing industry professionals surveyed at the Auction.com Disposition Summit in June said they expect their organization’s completed foreclosure auction volume to increase in 2023 compared to 2022. Most (62%) expect volumes to increase slightly while 24% expect volumes to increase substantially.
Foreclosure Volume Drivers
The survey also sheds some light on why mortgage servicers are anticipating a continued rise in foreclosure volume in 2023.
When asked to identify the top impacts on foreclosure volume in 2023, respondents ranked economic conditions (including mortgage rates) at the top of the list. That would indicate that survey respondents believe deteriorating economic conditions in 2023—caused in large part by the Federal Reserve’s string of interest rate increases over the past year—are likely to push more mortgage borrowers into delinquency and are also likely to make it harder for delinquent borrowers to avoid foreclosure through a loan modification or mortgage refinance.
Survey respondents ranked regulatory intervention as having the second-highest impact on foreclosure volumes in 2023. This would indicate that respondents believe the pullback of necessary and well-intended temporary foreclosure prevention programs implemented by legislators and regulators during the pandemic will allow some stalled foreclosure volume to be released.
Rebounding Roll Rates
The likely increase in foreclosure volume in the second half of 2023 is also supported by two other survey results relating to roll rates: (1) from seriously delinquent to foreclosure start and (2) from foreclosure inventory to completed foreclosure auction.
On average, survey respondents said they expect 6.4% of their organization’s seriously delinquent mortgages to start the foreclosure process on a monthly basis for the rest of the year. That monthly roll rate is nearly on par with the pre-pandemic average roll rate of 7% between 2017 and 2019, and it is more than three times the 2% roll rate from 2020 to 2022.
Similarly, survey respondents expect roll rates from foreclosure inventory to completed foreclosure auction to increase from their pandemic-era averages for the remainder of 2023. On average, respondents said they expect 6.6% of their organization’s foreclosure inventory to complete the foreclosure process each month for the rest of the year. That roll rate is more than three times the 2020 to 2022 average of 2% and even above the pre-pandemic average of 4%.
If applied to current foreclosure inventory volumes based on Black Knight data (234,000 as of the end of April 2023), the 6.6% monthly roll rate would result in about 84,000 completed foreclosure auctions in the second half of 2023, up substantially from the 48,000 in the second half of 2022, but still well below the 114,000 in the second half of 2019, according to ATTOM Data Solutions data.
Emerging Foreclosure Volume by State
Whether that specific prediction turns out to be correct for the second half of 2023, real-time data from Auction.com shows where scheduled foreclosure auction volumes are already increasing in the first half of 2023—suggesting corresponding increases in completed foreclosure auction volumes in the second half of 2023.
Nationwide, scheduled foreclosure auction volumes in the first six months of 2023 were up 29% from a year ago. Despite this increase, scheduled foreclosure auction volumes nationwide in the first half of 2023 were still at just 61% (or 39% below) what they were in the first six months of 2019.
Except for Colorado and Michigan, all these states were coming off extremely low volume in the first six months of 2022, helping to explain some of the dramatic percentage increases. And despite the relatively large year-over-year increases, three of the states—Idaho, Utah, and Montana—were still below 2019 levels in terms of scheduled foreclosure auction volume.
States with smaller increases, or even decreases (as is the case for New Jersey), may not necessarily be out of the woods when it comes to increasing foreclosure volume. That foreclosure volume may still be coming due to state-level variances in the foreclosure process.
For instance, even though New Jersey’s scheduled foreclosure auction volume is down year-over-year, it still had the eighth-highest inventory of properties that have started the foreclosure process among all states in the fourth quarter of 2022, according to data from the Mortgage Bankers Association (MBA) National Delinquency Survey.
Although scheduled foreclosure auction volume nationwide was still 39% below 2019 levels in the first quarter of 2023, there were 15 states where first quarter volume was above 2019 levels.