The Backlog is the Problem

First Mortgage Defaults

First Mortgage Default Rate from S&P/Experian Consumer Credit Indices

Last  Sunday the New York Times reported that it may take 62 years to clear out all the foreclosures in New York State.  New York is one of the 23 states where the courts play a role in resolving defaults and foreclosures. In the other 27 states the process is much faster but it could still take a year or more to catch up.  This overhang of defaults and pending foreclosures weighs on the housing market.  The backlog  deters buyers hoping for a deal on a foreclosed property, may encourage strategic defaults and probably raises the spectre of blighted neighborhoods.

The backlog is the problem. Hidden from view is the on-going decline in new mortgage defaults. The chart shows first mortgage defaults tracked by the S&P/Experian Consumer Credit Indices. These are measured as the percentage of outstanding mortgage balances that enter default each month.  It is measuring dollars, not people or homes and measures each dollar only once when the default occurs. As shown there, the peak was in May 2009; since then the default rate is declining.  We are not back to the one percent level experienced before the housing boom, but we are headed that way.  Unlike the situation in New York State, it won’t take 62 years to get the rate of new defaults back to a more normal level, maybe a year should do it.

The posts on this blog are opinions, not advice.
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