Delinquencies, Foreclosures back to Early Recession Levels

All four measures of distress in thernhousing market dropped to post-crash lows during the third quarter of 2013 thernMortgage Bankers Association (MBA) said today. rnThe national delinquency rate, serious delinquencies, loans in foreclosure,rnand foreclosure starts all registered significant declines during the quarter.</p

According to MBA’s National DelinquencyrnSurvey (NDS) the delinquency rate – all loans that are 30 days or more past duernbut not yet in foreclosure, decreased to a seasonally adjusted rate of 6.41rnpercent.  This was a drop of 55 basisrnpoints (bp) from the previous quarter and 99 bp from one year earlier and was thernlowest the delinquency rate since the second quarter of 2008.</p

Loans in the process of foreclosure (foreclosurerninventory) were also back to 2008 levels. rnThe inventory stood at 3.08 percent of the nation’s outstanding mortgagernloans, down 25 bp from the second quarter and 99 bp from the third quarter ofrn2012.</p

The rate at which foreclosure actionsrnwere initiated fell from 0.64 percent to 0.61 percent, the lowest level sincern2007 while serious delinquencies, loans that are more than 90 days past due orrnin foreclosure also tumbled.  Seriousrndelinquencies were down 23 basis points from last quarter and 138 bp from arnyear ago to a rate of 5.65 percent.  MBArncautioned however that, as was the case in the second quarter, one largernspecialty servicer who has received large numbers of loan transfers (assumed tornbe distressed) does not participate in the survey.</p

The combined total of loans that have missedrnone or more payments or are in foreclosure represent 9.75 of outstanding loans,rndown 38 bp quarter-over-quarter and 196 bp from the same period in 2012.  This is the lowest rate in five years.</p

Loans backed by the Veterans Administration sunkrnto the lowest delinquency rate since 1980 in part, MBA said, because 40 percentrnof its portfolio are loans originated since 2007.  </p

Jay Brinkmann, MBA’s Chief Economist and SVP ofrnResearch and Education said, “The degree to which the mortgage delinquency andrnforeclosure problem has changed over the last five years is perhaps bestrnillustrated by the fact that last quarter New Jersey led the nation in thernincrease in the percentage of foreclosure actions filed, followed by Delaware,rnMaryland and Indiana.  While Florida still leads the nation in thernpercentage of loans in foreclosure, that percentage is falling.  Inrncontrast, New York and New Jersey were the only two states that saw an increasernin the percentages of loans in foreclosure.</p

“States with judicial foreclosure systems stillrnaccount for most of the loans in foreclosure, Brinkmann continued.  Whilernthe percentages of loans in foreclosure dropped in both judicial andrnnonjudicial states, the average rate for judicial states was 5.28 percent, morernthan triple the average rate of 1.66 percent for nonjudicial states.</p

He said that despite considerable improvement inrnhome prices, only in a few states have prices returned to pre-crashrnlevels.  This is noteworthy because aboutrnthree quarters of delinquent loans were originated prior to 2007.  Even if the economy continues to improve hernsaid these loans are more likely to proceed to foreclosure in the case of a divorce,rnillness or job loss because of the lack of equity in the property.  This will keep the foreclosure rates abovernhistorical norms for a few more years despite the strong credit standards ofrnrecent vintages, he said.</p

“Finally, mortgage delinquencies are the result ofrnlocal economic conditions, not the cause of them.  Clearly local homernprice bubbles and the temporary injections from cash out refinancing andrnspeculation temporarily boosted some areas and made the subsequent economicrncrash even worse, but we are now at a point where local economic growth andrnpopulation movements will determine housing demand and mortgage performance.rn Those areas with the weaker climates for economic growth will see homernvalue and delinquency problems that are beyond the abilities of the mortgagernindustry and housing regulators to impact in a meaningful way,” Brinkmann said.

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