The third quarter of 2010 saw foreclosure start rates spike in Virginia and across the U.S. This was due to a large numbers of loans, which couldn’t be successfully modified, moving into foreclosure. During this same time, completed foreclosures also accelerated, resulting in a further drop in serious delinquency rates.
Inventories of lender-owned homes continued to grow in downstate markets—especially in the Hampton Roads and Richmond metro areas. As in Northern Virginia, efforts to reduce those inventories now face the challenge of weakening home sales. Home price declines in downstate markets slowed in the third quarter, due in part to the stabilizing impact of the federal homebuyer tax credit.
However, the overall supply of unsold homes has not yet returned to normal levels. This growing inventory of foreclosed homes will further stress home prices, and continue to negatively impact state and local taxes.
The significant purging of lender loss mitigation and foreclosure pipelines resulted in procedural problems in many states, especially those with judicial foreclosure processes. This led to a lender moratorium in late September. Although Virginia doesn’t have a judicial foreclosure process, the impact of the moratorium on the Commonwealth isn’t yet known. Still, there’s likely been a renewed increase in seriously delinquent loans since late September that will enter foreclosure in early 2011.
In spite of the problems lenders face in addressing loss mitigation and foreclosure issues, there has been steady improvement in both early-stage and overall default rates for several quarters. The total number of seriously delinquent loans has fallen by approximately 14,000 (17 percent) since the peak of over 81,400 in the fourth quarter of 2009.
Virginia continues to outperform the nation on all measures, with steady improvement in its ranking among states. This is due to the:
- Waning of the first wave of sub-prime and alt-A loan defaults that hit “bubble” markets in Virginia’s Northern Tier region especially hard.
- Much better performance of Virginia’s economy relative to that of other states.
Virginia’s improving situation is being driven mainly by significant reductions in foreclosure activity within the core of the Northern Tier region (Planning District 8). In this region, relatively lower unemployment, a return to more normal for-sale inventories and a strong investor market for distressed properties have lowered foreclosure activity, which now mirrors the statewide level.
This improvement has offset continued weakness in the outer portions of the Northern Tier region (i.e., northern Shenandoah Valley and northern Piedmont) and ongoing deterioration in downstate markets, where unemployment remains high. It’s unclear how many downstate markets have seen a peak in foreclosure activity. However, recent declines in default rates on traditional fixed-rate loans suggest that the peak is near, if not past.
To sum it up, while foreclosure levels have peaked and begun to decline, it will take substantial time to fully resolve the inventory of distressed loans and properties. In addition, weak home purchase demand continues to inhibit the resolution of the lender-owned inventory of homes. The reinforcing interplay of declining home values and large distressed home inventories has yet to be broken. The 2011 spring home buying season will be critical to the initiation of a meaningful reduction in home inventories and a more sustainable market recovery.
For additional information, visit virginiaforeclosureinfo.com.