Although foreclosure activity has waned nationally since its peak four years ago, it remains stubbornly entrenched in certain areas as policymakers look for ways to help homeowners remain in their homes.
Recent data from the Federal Reserve Bank of Richmond show that foreclosure and mortgage delinquency rates in the Fifth District, which encompasses Maryland, Virginia, North and South Carolina, West Virginia, and the District, have essentially been flat in the past year. The exception is Maryland, which continues to struggle with foreclosures. In November, Maryland posted the third-highest foreclosure rate in the nation, with one out of every 618 homes in the state in some stage of foreclosure, according to statistics released this month by the housing data firm RealtyTrac.
As nonprofit groups and government agencies grapple with how best to help homeowners facing foreclosure, a study by the Richmond Fed suggests that one of the chief tools may not be as effective as first thought. Mortgage-assistance events were intended to help homeowners avoid foreclosure, but in many cases that assistance did not produce the desired outcome.
The authors of the study found that 59 percent of homeowners who received assistance at one of those events failed to become current on their mortgage payments.
“People who got assistance were more likely to succeed in going back to being current on their payments, but there were things we’ve known for a while that are really more important,” said Urvi Neelakantan, a research economist at the bank and one of the authors of the study. “Assistance wasn’t necessarily enough to overcome those things. Big things like a big financial shock in your life — death, disability, job loss — almost all of the homeowners we spoke to had that happen to them. The crisis compounded it.”
At its peak in 2009, the number of foreclosure starts in the United States soared to 2.4 million. That number has dropped over the years, but it has yet to return to pre-housing-bust levels.
RealtyTrac released data earlier this month showing that foreclosure filings across the country dropped 15 percent in November from the previous month, driven by a nearly eight-year low in foreclosure starts.
For the Fifth District, the Richmond Fed found that the percentage of mortgages in foreclosure edged down 0.2 percentage points, to 2.3 percent, in the third quarter, 0.8 points lower than in the same period of 2012. The 90-day-or-more delinquency rate held steady at 2.6 percent in the third quarter, essentially unchanged from the second quarter and 0.2 points lower than a year earlier.
One of the ways governmental and nongovernmental agencies tried to help homeowners was by setting up mortgage-assistance events. They were intended to provide homeowners with alternatives to foreclosure.
The authors of the study wanted to find out how effective these events were. Starting in 2010, they began attending events and asking people to let them follow up with them over the next year or so. After initially making contact with about 200 homeowners at events in Richmond and Prince William County in Virginia and Prince George’s County and Baltimore County in Maryland, they were able to follow about 120 homeowners for at least a year.
About two-thirds of the homeowners surveyed received assistance in the form of either a loan modification or refinancing. The authors noted that those homeowners who received assistance were more likely to become current on their mortgage payments. But they also observed that servicers were more likely to help homeowners who were in a position to succeed, such as those who were employed.
Even that assistance, however, did not guarantee success. Homeowners who owed much more on their homes than they were worth or had experienced illness or job loss could not overcome that shock even with assistance.
Neelakantan said more analysis of the data is needed before any conclusions are drawn. He does suggest educating homeowners about the need for financial buffers that would help them be better prepared for adverse life events.
“We haven’t done enough policy analysis to say specifically this is good or this is bad,” Neelakantan said. “But I think the bigger question of insurance, having six months’ savings, taking out some kind of policy if you don’t have savings — at the very least I think people should have good information about stuff like that before things happen to them.”