Distressed Loans Hit Five Year Lows; Delinquencies Down for all but FHA Loans

Distressedrnloans fell to the lowest level in five years during the secondrnquarter the Mortgage Bankers Association (MBA) said today. Bothrndelinquencies and loans in foreclosure saw substantial decreases bothrnfrom the previous quarter and from one year earlier with foreclosurernstarts during the quarter at less than half of the peak rate of1.42rnpercent in September 2009.</p

Therndelinquency rate for one-to-four family mortgages decreased to arnseasonally adjusted rate of 6.96 percent at the end of the secondrnquarter, 29 basis points (bps) below the rate at the end of QuarterrnOne and the lowest rate since mid-2008. The rate at the end of thernsecond quarter of 2012 was 7.58 percent.</p

MBA’srnNational Delinquency Study bases its delinquency rate on loans thatrnare at least one payment past due but not in foreclosure. Loans forrnwhich foreclosure proceedings were started during the quarterrnrepresented .64 percent of mortgaged properties and those starts wererndown from .70 percent in the first quarter. Loans actively in thernforeclosure process represented 3.33 percent of all loans compared torn3.55 percent in the first quarter and 4.27 percent during the samernperiod in 2012.</p

Thernrate of serious delinquencies, those that are 90 or more days pastrndue or in foreclosure was 5.88 percent, down 51 bps from the previousrnquarter and 143 bps year-over-year. MBA said that both first andrnsecond quarter results may overstate the improvement in longer termrndelinquencies because a number of distressed loans have beenrntransferred to a large specialty servicer which does not participaternin the MBA survey. </p

Pastrndue and loans in foreclosure now represent 10.13 percent of allrnmortgage loans, 17 bps less than in the first quarter and 149 bpsrnbelow the rate in Q2 2012 and the lowest rate since 2008.</p

JayrnBrinkmann, MBA’s Chief Economist and Senior Vice President ofrnResearch and Economics said, “For most of the country,rndelinquencies and foreclosures have returned to more normalrnhistorical levels. Most states are at or only slightly abovernlonger-term averages, and some of the worst-hit states are showingrnimprovement. For example while 10 percent of the mortgages in Floridarnare somewhere in the process of foreclosure, this is downrnconsiderably from the high of 14.5 percent two years ago. WhilernFlorida leads the country in the rate of foreclosures started, thatrnrate of 1.1 percent is the lowest since mid-2007 and half of what itrnwas three years ago.” </p

Brinkmannrnsaid some of the highest numbers are in New York, which hit an allrntime high in the second quarter and is now essentially equal withrnFlorida, and New Jersey and Connecticut. The percentage of loans inrnforeclosure in New Jersey remains about the same as the rates inrnCalifornia, Arizona and Nevada combined. The foreclosure percentagesrnin Connecticut are back to near all-time highs for that state.</p

“Inrncontrast,” he said, “foreclosure starts fell or were unchanged inrn43 states and the foreclosure inventory rate either improved or wasrnunchanged in 45 states.</p

“Statesrnwith a judicial foreclosure system continue to bear arndisproportionate share of the foreclosure backlog. While thernpercentage of loans in foreclosure dropped in both states withrnjudicial systems and states with nonjudicial systems, the averagernrate for judicial states was 5.59 percent, triple the average rate ofrn1.86 percent for nonjudicial states. Both declined to recent lows,rnwith judicial states seeing the lowest foreclosure inventory sincern2009 and nonjudicial states seeing the lowest foreclosure inventoryrnsince 2007.” Brinkmann said.</p

Overallrndelinquency rates decreased from the first quarter on a seasonallyrnadjusted basis for all loan types except FHA loans. Prime fixed-raternmortgages (FRM) decreased 23 bps to 3.54 percent and adjustable raternmortgages (ARM) by 87 bps to 6.75 percent. In the subprime categoryrnFRM were down 131 bps to 18.81 percent and 271 bps to 21.01 percentrnfor ARM. The VA rate was 6.14 percent, a decrease of 20 bps but thernFHA rate rose six bps to 11.03 percent. The FHA increase was led byrna 26 bps increase in the 30-day delinquency rate. </p

Thernforeclosure inventory rate for prime FRM was down 27 basis points andrndown 56 bps for ARM. The inventory for subprime FRM increased 39 bpsrnbut the ARM inventory decreased by one bps. FHA loans were down 28rnbps points and VA loans 10 bps. </p

Givenrnthe challenges in interpreting the true seasonal effects in theserndata when comparing quarter to quarter changes, MBA said it isrnimportant to highlight the year over year changes of thernnon-seasonally adjusted results. Compared with one year earlier, thernforeclosure inventory rate decreased 71 bps for prime fixed loans,rn292 bps for prime ARM loans, 102 for subprime fixed, and 486 forrnsubprime ARM loans, 55 bps for FHA loans and 40 for VA loans.</p

Overrnthe past year, the non-seasonally adjusted foreclosure starts raterndecreased 21 bps for prime fixed loans, 72 bps for prime ARM loans,rn34 for subprime fixed, 30 for subprime ARM loans, 72 for FHA loansrnand one bp for VA loans.

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