Auction.com Finds Most Default Servicers Expect Soft Landing, Slowly Rising Foreclosures

(Illustration courtesy of Auction.com)

Most default servicers expect a soft landing in the economy and a gradual increase in foreclosure volumes in the second half of 2024, according to Auction.com, Irvine, Calif.

Auction.com’s 2024 Seller Insights report surveyed leaders from banks, nonbanks, mortgage asset owners, government agencies and government-sponsored enterprises.

“Nearly halfway through the year, leaders in this industry are telling us that the risk of rapidly rising delinquencies and foreclosures this year remains low and that they expect a soft landing in the housing market and broader economy despite an expectation that mortgage rates will remain relatively high throughout the remainder of the year,” Auction.com CEO Jason Allnutt said.

Unemployment and Mortgage Rate Expectations

On average, respondents expect the unemployment rate to end 2024 at 3.6%, although nonbank servicers were less optimistic at 4.1%, the report said. This soft-landing outlook came despite most survey respondents expecting mortgage rates to remain persistently high at 6.3% to end 2024.

Home Price Expectations

More than three-fourths of respondents said they expect positive home price appreciation to end 2024 while 21% expect a decrease of less than 5% and just 3% expect a decrease of 5% or more.

“Despite the stress of higher-for-longer mortgage rates, demand and pricing for distressed properties sold at auction remains strong, an indication that retail home prices will continue to rise in the next three to six months,” Auction.com President Ali Haralson said.

Foreclosure Expectations

Most default servicing leaders surveyed (57%) said they expect a gradual rise of between 1% and 4% in their organization’s foreclosure volumes through the end of 2024. 10% said they expect an increase of 5% or more in foreclosure volumes while another 10% expect a decrease of 5% or more.

“Completed foreclosure volumes have remained at about half of their 2019 levels this year, thanks in large part to more robust loss mitigation options coming out of the pandemic,” Auction.com Chief Business Officer Joe Cutrona noted.

Loss Mitigation Performance

Just over half–51%–of loans in loss mitigation were expected to permanently perform, according to respondents. “That permanent performance rate is in part thanks to an ample equity cushion for seriously delinquent loans entering the loss mitigation waterfall,” the report said. “Survey respondents estimated that seriously delinquent loans in their portfolio had an average combined loan-to-value ratio of 65%.”

Emerging Risks

Survey respondents identified the rising “hidden” homeownership costs of homeowners insurance and property taxes as the biggest potential risk for triggering higher delinquency rates in 2024. Respondents assigned 37% of a theoretical 100 points of risk to those hidden homeownership costs, followed by rising consumer debt delinquencies with 32% of risk and rising unemployment with 15% of risk. Commercial mortgage defaults received 10% of risk while falling home prices received only 6% of risk.

“Although the risk of rapidly rising delinquencies in the near term remains low, there are some signs of consumer and homeowner stress emerging,” said Daren Blomquist, Vice President of Market Economics at Auction.com.