Extended disposition timeline costs passed on to consumer?
According to CoreLogic’s Chief Economist, Dr. Mark Fleming notes that in the current economic climate, the costs of the extended disposition timelines of distressed assets could ultimately be passed on to the consumer, adding yet another challenge to the recovery of the housing sector.
Dr. Fleming explains, “Consumer costs are also likely to rise with more regulatory oversight of mortgage servicing practices. Whether federal or state, such as the California Homeowner’s Bill of Rights, these regulations increase the time it takes to dispose of a distressed mortgage asset.”
“Extended disposition timelines impose operational costs on servicers, carrying costs on investors in the mortgages, and in some cases, significant legal risk and compliance costs,” Dr. Fleming continued. “The likely result is more expensive mortgages and possibly increased rationing of credit based on the additional cost of disposition, which may vary dramatically by local foreclosure process requirements.”
The company reports that the time it takes for a distressed property to pass through the entire disposition timeline has risen across all states in the last 10 years from an average of seven months to 24 months in non-judicial states and 35 months in judicial states.
Housing and REO inventory levels
The decline in REO inventories driven by investor demand has been uneven across markets, as Northeastern and Midwestern housing markets continue to struggle with elevated REO inventory levels, while levels have dramatically declined in the South and Southwest.
Institutional investors accelerated REO purchases in select markets in 2012, most notably in Las Vegas, Atlanta and Phoenix, while individual investor activity was responsible for declines in REO inventory in California markets.
Dr. Fleming concludes that “among mortgage lenders, the cost of disposition is better recognized and understood today than ever before. The costs are higher across the board and even more so in judicial states. Recognizing this cost of mortgage lending will lead to differentiated pricing of loans to reflect either differences in disposition timelines, differentiated minimum qualifications for credit or both.”