NATIONAL ASSOCIATION OF HOME BUILDERS N. H. ROGG-DIRECTOR OF ECONOMICS AND POLICY PLANNING MICHAEL SUMICHRAST-ASSISTANT ECONOMICS DIRECTOR NORMAN FARQUHAR-ECONOMIC ANALYST Special Report 63-7 MORTGAGE FORECLOSURES SUMMARY June 24, 1963 ... Although the foreclosure rate for the nation as a whole continues to rise, it has not reached the danger level yet. But there are local situations where the foreclosure rate is too high in relation to the national rate causing some concern among people in the building industry. ... Reasons for foreclosures are many: the most important one is the end of the inflation era. Some others: poor credit selection, overestimating of market potential, unemployment, small equity, creation of national mortgage market, mobility, increase in consumer credit and others. FHA experience shows that most of the foreclosures occur between the second and third years after purchase. If the house was held for more than four years, chances of foreclosure are considerably reduced. MORTGAGE FORECLOSURE RATE STILL RISING The number of foreclosures on non-farm properties continued the upward climb of the last 1 years in the first quarter of 1963, but at a slightly slower pace than in 1962. In the first three months, the foreclosures totaled 23,505 units, or 12% above the same period of last year. 1962 foreclosures numbered 83,704, up 15% from the 75,074 in 1961. II - The number of foreclosures has been growing since World War but so has the number of mortgaged homes. Comparing foreclosures as a per cent of mortgaged homes we can detect a slow and persistent increase from the low of 0.10% in 1946 to 0.41% in 1962, and to 0.46% projectea for 1963. Ar analysis of the year-to-year increase for the last 10 years discloses an obvious fact: the largest jumps occurred during the recession periods (see Table I). ... FHA AND VA FORECLOSURES HIGHER THAN CONVENTIONALS Since 1955 the FHA foreclosure rate has moved up from 0.21% of total insured mortgages to 0.89%, an increase of more than four times. Taking the 1958-1959 figures, the increase is even sharper: a rise from 0.11% in 1958 to 0.15% in 1959, and nearly doubling it every year since then. VA foreclosure rate (claims paid) similariy moved upwards, reaching 21,860 in 1962, as compared to lú,645 in 1959, and 3,719 in 1955. However, in 1962 the rate of paid claims as a percentage of outstanding mortgages was lower than the FHA rate. This is in contrast to the 1958-1960 period when VA rate was higher. Significant shifts occurred between 1950 and 196û in the mortgage insurance programs acquisitions. Until 1954, Section 603 provided the majority of the home acquisitions, reflecting the special risks taken to promote the war time housing. The peaks of property acquisition which occurred in 1955-1956 reflects the promotion of housing in isolated localities in connection with the Korean emergency (under Section 903 and 205). The increase of acquisitions under Section 203 beginning in 1953 reflects a basic change in housing market conditions rather than special program objectives such as seen under Sections ous and 903. FHA experience also shows that the accumulation of equities with the passage of time reduces the probability of property acquisition. Nearly nalf of all the default as of September 30, 1960, related to mortgages insured in 1957 or earlier. In other words, the period of two to three years after the purchase is a dangerous one for the home buyer: chances that he will foreclose drop substantially after the third year: only 10% of all foreclosed homes are from homes held more than four years. THE SIGNIFICANCE OF THE FORECLOSURE RATE The national foreclosure rate reflects the sum of the local situations, but it does not show or explain local foreclosure difficulties. But .. it is a danger signal which we must not ignore. There are some indications that a foreclosure rate is quite high in some areas. (See Table III.) While the national totals may not be cause for alarm, a look at the statistics for a particular state or metropolitan area might indicate severe problems that should be examined in terms of demand for housing. Florida, Michigan, and Louisiana, in recent years, have had high foreclosure rates. But within recent months it has become apparent from data gathered by the Mortgage Bankers Association that the foreclosure rates and delinquency rates in these three states may be on the decline. This points up one other aspect of the problem the often marked short-term 1 fluctuations resulting from shifts in the economic outlook. |