After a Two-Year Hiatus, Will Foreclosure Volume Return in 2022? 

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Data from Auction.com and other sources suggest that foreclosure volume will increase substantially in 2022 off a record low in 2021, while staying safely below pre-pandemic levels.

The trend of gradually rising foreclosure volume was already established leading into 2022. Completed foreclosure auctions on the Auction.com platform in the fourth quarter of 2021 increased 19% from the previous quarter and were up 98% from a year ago to a new pandemic high.

Despite the sharp percentage increases, fourth-quarter foreclosure auction volume was still 62% below pre-pandemic volume in third quarter 2019.

Auction.com handles about 40% of all completed foreclosure auctions nationwide. Completed foreclosure auctions include properties sold to third-party buyers at the foreclosure auction and properties reverting to foreclosing lender as real estate owned (REO).

Supply of Seriously Delinquent Mortgages

There’s an ample supply of seriously delinquent mortgages—many of them no longer protected by foreclosure moratoria or mortgage forbearance—to fuel continued increases in completed foreclosure volume in 2022. Data from Black Knight shows 12 million seriously delinquent mortgages as of the end of November 2021, on track to drop to about 1.1 million by the end of December.

The seriously delinquent mortgage supply is down dramatically, by 1.5 million, from the recent peak of 2.6 million in August 2020. But the 1.1 million remaining still represents enough supply to fuel a foreclosure volume increase in 2022, especially considering that many of those 1.1 million are deeply delinquent and are no longer protected by foreclosure moratoria or forbearance.

The 1.1 million seriously delinquent mortgages are an average of 399 days delinquent, the highest average days delinquent since 2017, according to Black Knight. This deep delinquency hold will be harder for distressed homeowners to dig out off.

More than half a million of those seriously delinquent loans (567,013) are no longer protected from foreclosure by mortgage forbearance or loss mitigation, according to a recent report from the Federal Reserve Bank of Philadelphia.

Of the more than half million seriously delinquent mortgages in that unprotected bucket, about 261,000 were portfolio loans and another 106,000 were in private-label mortgage-backed securities. Neither of those two categories represent mortgages owned or insured by government agencies. Banks and servicers are typically more motivated to expedite the loss mitigation and foreclosure process on mortgages in their own portfolios or owned by private investors.

None of the 1.1 million seriously delinquent mortgages are protected by the blanket foreclosure moratorium on government-backed loans that was implemented in April 2020, in the immediate wake of the pandemic. That blanket moratorium expired July 31, 2021. It was replaced in part by a temporary rule restricting many foreclosures from the Consumer Financial Protection Bureau (CFPB), but that temporary rule expired Dec. 31, 2021.

Foreclosure Forecast Framework

The historical rate of annual foreclosure auctions as a percentage of seriously delinquent mortgages at the beginning of each year provides a framework from which to estimate how many of the 1.1 million seriously delinquent mortgages will end up at foreclosure sale in 2022.

Between 2005 and 2019, annual foreclosure auction volume represented 27% of the January seriously delinquent mortgage volume, on average. In 2019 the rate was 25%. Applying that 25% to the 1.1 million seriously delinquent number results in about 272,000 completed foreclosures in 2022, up from the all-time low of 75,000 in 2021 to the highest level since 2017.

Given all the energy and resources still being directed at foreclosure prevention—and rightly so—it’s likely the seriously delinquent-to-foreclosure auction roll rate will be closer to 13% in 2022. That 13% is the average of the roll rate from 2019 to 2021, right before and during the pandemic. This would result in about 139,000 completed foreclosure auctions in 2022, up 84% from the 2021 record low, but still the third-lowest total going back to 2005—lower only than 2020 and 2021.

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