Mortgage foreclosure volumes tend to rise amid market uncertainty

Mortgage foreclosure volumes rose almost 7% in May as borrowers faced continued rate volatility.

Bonds grew at an increased rate of 6.78% in May, compared with 1.87% in April, according to secondary market services provider Mortgage Capital Trading. On a year-over-year basis, mortgage foreclosure volume also increased by 19.84% last month

Among the loan categories, interest rate and long-term refinancing had a monthly increase of 18.21%, with cash-out at 4.99%. Buying blocks were headed 6.54% higher.

The increase in foreclosures comes as mortgage borrowers continued to face unpredictable movements in interest rates, which were expected to rise again this spring. Year-end 2023 forecasts provided a ray of hope for investors and a tough credit market, with optimism pushing rates lower during the first quarter. But expectations were extinguished as the incoming economic data showed that inflation has lasted longer than was predicted.

The Federal Reserve has regularly cited a 2% inflation mark for lowering the base rate that banks lend to each other. The federal funds rate has an impact on where lenders set their rates. Inflation rose 3.4% in April, with May numbers scheduled to be released on June 12.

“The next two months will be key from a data standpoint as the Federal Reserve looks for an inflation trend moving toward the 2% target,” said Andrew Rhodes, senior director and head of trading at MCT, in a press release.

Volatility has been a hot topic in the mortgage market over the past couple of years. The data, including May’s government jobs report, appears to be rising more questions than answers when the Federal Reserve might make moves that would lead to more certainty in the market.

“Given the number of non-farm payrolls that just came out, it will take more time to establish a trend,” Rhodes said.

After remaining below 7% between January and March, the 30-year fixed rate climbed back above that point starting in April, according to Freddie Mac’s weekly Primary Mortgage Market Survey. While it retreated in May, the rate crossed the threshold again in early June.

As lenders experienced more foreclosed volume, the pace of growth in May came in lower than at the start of 2023, when interest rates were falling. January saw an increase of almost 14%, with February and March recording about 27% and 15% respectively.

Meanwhile, Optimal Blue Similar spring patterns reported earlier, with lock-in rates following even higher in April – an 11% monthly increase compared to MCT numbers. An annual increase in purchase foreclosures, which was the first in more than two years, also served as a possible sign of buyers returning to the market.

May purchase application numbers from the Mortgage Bankers Association showed an overall decline in new originations.