Foreclosures

Trends in Foreclosure Rates in the United States

Nationally, the long-term trend in foreclosures has been decidedly upward, with much higher rates since the subprime crisis began in the latter half of the 2000s. In the early 1980s, foreclosure rates on conventional loans were on the order of 0.3% to 0.4%. They rose significantly during that decade to exceed 1%. Even as the economy grew in the late 1990s, foreclosure rates increased, exceeding 1.1% by late 1997. In the late 1990s and early 2000s, the pattern remained one of historically high foreclosure levels, reaching 1.3% in late 2003.

The increases in high-risk mortgage lending—especially subprime loans—during the late 1990s and from 2002 to 2007 resulted in corresponding increases in mortgage delinquencies, defaults, and foreclosures. While foreclosure rates—the number of loans entering foreclosure per total outstanding loans—increased due to the greater risk of subprime and other high-risk products, the total numbers of foreclosures increased even more, especially in the second boom period, because the total volume of high-risk lending increased so sharply. While high levels of defaults and foreclosures are not the only problems caused by excessively risky lending, they are among the most obvious and have the most direct impacts on borrowers, lenders and investors, neighborhoods, and local government.

Subprime foreclosure rates rose sharply from 1998 to 2000, preceding the 2000 to 2001 recession. Moreover, while foreclosure rates for subprime loans varied widely across the period, foreclosure rates for FHA loans—which generally are intended for borrowers unable to qualify for prime loans—remained essentially flat, with only modest increases during the 2000 to 2004 period, a substantial portion of which was impacted by the 2000 to 2001 recession.

Subprime foreclosure rates rose particularly steeply in 2007, reaching an annualized rate of 13.8% by the end of 2007, compared to a rate of 5.7% for 2005, which itself was much higher than historic foreclosure rates for prime loans. By the second quarter of 2008, the annualized rate of foreclosure starts had reached 17%. In late 2007 and into 2008, the foreclosure rate of prime mortgages also began to increase significantly, suggesting that the breakdown in credit markets and associated declines in housing prices were beginning to cause spillovers into more conventional lending markets. As unemployment levels rose in 2009, prime foreclosure rates continued to increase but remained substantially below those of subprime loans.

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