Home foreclosure starts continue to climb, up 5 percent y/y

home foreclosures

Inflation continues to wreak havoc on the American economy according to one important indicator: foreclosures. Foreclosures are rising across the country.

Foreclosure data is compiled into categories: Foreclosure starts and completed foreclosures. Entering and moving through the phases of foreclosure does not always result in the property being foreclosed upon. Property owners may apply for a loan modification; file for bankruptcy (Chapter 7, debt discharge of certain other assets or Chapter 13, a debt restructure); execute a short sale of the property; or voluntarily sign over the deed of the property to the lender (not common as this represents high legal risk for the lender) in order to avert a final bankruptcy.

In May, lenders completed the foreclosure or repossession of 4,020 properties—called real estate owned or REO. This was a 38 percent month-over-month increase and 41 percent increase year-over-year in repossessions according to the ATTOM U.S. Foreclosure Market Report for May. States with the greatest number of REOs were Illinois (352 REOs); Ohio (279); Michigan (271); Texas (240); Pennsylvania (229).

The number of properties that entered the foreclosure process was much higher: 23,245 properties in May. This was up 4 percent month-over-month and 5 percent year-over-year. Overall, owners of 35,196 U.S. properties received foreclosure filing notices (default notices, scheduled auctions, bank repossession), up 14 percent from a year ago.

Five states with highest foreclosure rates

Nationally one in every 3,967 housing units had an attached foreclosure filing. The states with even higher rates of foreclosure filings included Illinois (one in every 2,144 housing units had entered the foreclosure process); Maryland (one in 2,257); New Jersey (one in 2,257); Florida (one in 2,470) and Ohio (one in 2,478).

Major metropolitan cities (greater than 1 million population) with the highest rates of foreclosure were Cleveland, Ohio; Jacksonville, Fla.; Baltimore, Md.; Chicago, Ill.; and Orlando, Fla.

Bankruptcies are the canary in the coalmine

Using the full-year data from 2022, the share of housing units in the beginning stages of foreclosure (0.23 percent) doubled from the year prior (0.11 percent) but remained below the long-term historic average or the record high (2.23 percent) of the financial crisis of 2007-2008.

Prior to the financial crisis, mortgage debt rose due to the federal government regulating banks into greater numbers of subprime loans to unqualified borrowers. Foreclosures peaked in 2010 on the heels of the crisis and fell steadily every year thereafter… until 2022 when they began to again move upward. During the COVID lockdowns, the government imposed a foreclosure moratorium, a mortgage forbearance program and a mortgage servicing guideline which artificially suppressed the rates of foreclosure in 2020 and 2021.

About the data

The ATTOM U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing entered into the ATTOM Data Warehouse during the month and quarter. Some foreclosure filings entered into the database during the quarter may have been recorded in the previous quarter. Data is collected from more than 3,000 counties nationwide, and those counties account for more than 99 percent of the U.S. population. ATTOM’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). For the annual, midyear and quarterly reports, if more than one type of foreclosure document is received for a property during the timeframe, only the most recent filing is counted in the report. The annual, midyear, quarterly and monthly reports all check if the same type of document was filed against a property previously. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state where the property is located, the report does not count the property in the current year, quarter or month.