National Delinquency Survey: Must Stop the Bleeding

Jay Brinkmann, the Mortgage Bankers Association’srn(MBA’s) Chief Economist, told reporters on Monday that MBA’s NationalrnDelinquency Survey (NDS) for the second quarter of 2011 combines good news withrnnot so good news.  </p

“While overallrnmortgage delinquencies increased only slightly between the first and secondrnquarters of this year, it is clear that the downward trend we saw through mostrnof 2010 has stopped.  Mortgage delinquencies are no longer improving andrnare now showing some signs of worsening,” he said.  “The good news is the continued decline inrnlong-term delinquencies, those mortgages that are three payments or more pastrndue. The bad news is that drop is offset by an increase in newly delinquent loansrnone payment past due.”</p

The delinquency rate for mortgage loansrnon one-to-four-unit residential properties increased to a seasonally adjustedrn(SA) rate of 8.44 percent of all loans outstanding as of the end of the secondrnquarter of 2011, an increase of 12 basis points from the first quarter of 2011,rnand a decrease of 141 basis points from one year ago, according to the NDSrnreport. The non-seasonally adjusted (NSA) delinquency rate increased 32 basisrnpoints to 8.11 percent this quarter from 7.79 percent last quarter.</p

The 30+ day delinquency figures are notrnnearly as good.  Loans in that bucketrndeclined 5 basis points (bp) (SA) and 2 bp (NSA) to 3.46 and 2.22  percent respectively while on a quarterlyrnbasis the 30+ day rose 11 bp and 32 bp.  The 60+ days delinquency bucket was down 15 bprnfrom one year ago, both SA and NAS, but up from last quarter 2 bp and 9 bp. </p

Brinkmann compared the current housingrnindustry to an accident victim saying that one would love to rush to patch uprnthe wounds and start rehabilitating the patient, “but first we must stop thernbleeding which, in this case is delinquent loans.” Brinkmann said the currentrnfigures indicate that it may be a while before we see the patient healing andrnmoving toward rehabilitation. </p

The increase in early delinquencies, Brinkmannrnsaid, is not surprising.  “Mortgage loansrnthat are one payment, or 30 days, past due are very much driven by changes inrnthe labor market, and the increase in these delinquencies clearly reflects therndeterioration we saw in the labor market during the second quarter. Weeklyrnfirst-time claims for unemployment insurance started the quarter at 385,000 butrnfinished the quarter at 432,000. The unemployment rate started the quarter at 8.8rnpercent but climbed to 9.2 percent by the end of the quarter.”</p

The numbers for more advancedrndelinquencies are more encouraging.  Thernpercentage of loans on which foreclosure actions were started during the secondrnquarter was 0.96 percent, down 12 basis points from last quarter and down 15rnbasis points from one year ago. The delinquency rate includes loans that are atrnleast one payment past due but does not include loans in the process ofrnforeclosure; those equaled 4.43 percent of loans, down 9 basis points from thernfirst quarter and 14 basis points lower than one year ago. The seriousrndelinquency rate, the percentage of loans that are 90 days or more past due orrnin the process of foreclosure, was 7.85 percent, a decrease of 25 basis pointsrnfrom last quarter, and a decrease of 126 basis points from the second quarterrnof last year.</p

The combined percentage of loans inrnforeclosure or at least one payment past due was 12.54 percent on arnnon-seasonally adjusted basis, a 23 basis point increase from last quarter, butrn143 basis points lower than a year ago. </p

Foreclosure start rates fell to their lowestrnlevel since the fourth quarter of 2007 and foreclosure inventory rates were atrntheir lowest level since the third quarter of 2010.  The economist disputed what he said werernclaims of others that the drop in foreclosure starts is a temporary effect ofrnpaperwork issues and presages a big surge in foreclosures at some point.  The MBA report, he said does not supportrnthis.  Paperwork may be preventing somernevictions and affecting REO, but the only place there appears to be an overhangrnof inventory is in judicial states.  Ninernstates currently have a higher rate of foreclosure than the national average ofrn4.43 percent and all but one of these (long-time trouble spot Nevada) is arnjudicial foreclosure state.  Florida atrn14.39 percent has a rate more than three times the national average and nearly twicernthat of the second highest state, Nevada.</p

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Foreclosures continue to be concentrated in justrna few states with five accounting for 52 percent of the current foreclosurerninventory.  Again this appears to berndriven by whether the state has a judicial or non-judicial foreclosure system. rn”One of the reasons the percentage of loans in foreclosure in California (3.6rnpercent) is considerably lower than states like Florida (14.4 percent), NewrnJersey (8.0 percent), Illinois (7.0 percent) and New York (5.5 percent) is thatrnCalifornia does not have a judicial foreclosure system. Therefore, as we workrntoward resolving the foreclosure overhang in the housing market, we should berncareful to distinguish between the economic impediments to resolution and thernlegal impediments to resolution,” Brinkmann said.  He pointed to Maryland where a new mandatoryrnmediation law may be responsible for an increase in the number of loans 90+rndays delinquent.</p

On a seasonally adjusted basis, the overallrndelinquency rate increased for all loan types. The seasonally adjustedrndelinquency rate increased 15 basis points to 4.74 percent for prime fixedrnloans and increased 51 basis points to 11.76 percent for prime ARM loans. Forrnsubprime loans, the delinquency rate increased 58 basis points to 22.62 percentrnfor subprime fixed loans and increased 87 basis points to 27.18 percent forrnsubprime ARM loans. FHA and VA loans also saw increases, with the delinquencyrnrate increasing 59 basis points to 12.62 percent for FHA loans and increasingrn12 basis points to 7.05 percent for VA loans. Statistics for loans inrnforeclosure and foreclosure starts also decreased for each loan type with thernexception of subprime fixed-rate loans which saw an increase in the foreclosurerninventory rate of 48 basis points or 11.01 percent.</p

In response to a question about steps therngovernment might take to “stop the bleeding” Brinkmann said that housing is nornlonger driving the economy.  “Housing isrna reflection and whatever the government does for the overall economy will bernthe best thing they can do for housing.”

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