Report Reveals Delinquency and Foreclosure Rates Down for 4th Quarter

A recent Mortgage Bankers Association (MBA) report revealed that overall, delinquencies and foreclosures are on a decline, and when gauging where the U.S. housing market stands in terms of recovery, Jay Brinkmann, MBA’s chief economist and SVP for research and education, said we are about halfway to the pre-recession days.

The MBA released its 2011 4th quarter national delinquency survey results Thursday. Delinquency in the report is defined as loans that are at least one payment past due but not in the process of foreclosure.
Overall, the delinquency rate for mortgage loans on one-to-four unit residential properties decreased to 7.58 percent, compared to 7.99 percent for the third quarter, and 8.25 percent a year ago during the fourth quarter in 2010.
“The total delinquency rate peaked at 10.1 percent in the first quarter of 2010. It now stands at 7.6 percent, about half way to the longer-term pre-recession average of roughly 5 percent,” Brinkmann.
With the exception of the 30-day bucket, which increased from 3.19 percent last quarter to 3.22 percent this quarter, all delinquencies were down. More notably, loans delinquent 90 or more days decreased from 3.50 percent last quarter to 3.11 percent, a 39 point decrease.
Capital Economics said the fall of borrowers in the more severe stages is encouraging if it means that more borrowers are becoming current again, and the lack of improvement for 30 day delinquencies could be the severe delinquencies falling.
Brinkmann said the improvement in mortgage performance reflects the improvements seen in the job market and broader economy, and added that the mortgage delinquency rate is actually falling faster than the unemployment rate is declining.
Delinquency rates for problematic loans had significant decreases, with prime ARM loans at 9.22 percent this quarter, compared to 10.73 percent last quarter, and subprime loans dropping 157 points, ending at 19.67 percent, compared to 21.24 percent last quarter.
The exception to this downward trend were FHA loans,
which saw an increase in delinquency rates at 12.36 percent this quarter, compared to 12.09 percent last quarter.
“Part of the reason is that the FHA book of business has shown rapid growth, and purchase loans originated in 2008 and 2009 are only now entering the peaks of a normal delinquency curve,” said Brinkmann.
Another exception to the notable trends seen in the report is the percentage of loans in foreclosure inventory. While the percentage is down this quarter at 4.38 percent compared to 4.43 percent last quarter, it is still far from the halfway mark on the road to recovery.
Brinkmann said the longer-term average is roughly 1.2 percent for foreclosure inventory.
Foreclosure starts, loans on which foreclosure actions were initiated, were down at 0.99 percent, compared to 1.08 percent for the third quarter, and 1.27 percent a year ago. Seriously delinquent loans – loans that are 90 days or more past due or in foreclosure – were at 7.73 percent this quarter compared to 7.89 percent last quarter, and 8.60 percent a year ago.
Foreclosure inventory in judicial states actually increased and was significantly higher at 6.80 percent, compared to inventory in non-judicial states, which was at 2.79 percent and saw a decrease over time. Data also revealed that foreclosure starts for both types of states were relatively similar.
Michael Fratantoni, MBA’s VP of research and economics, explained that the issue is not the rates at which non-judicial versus judicial states enter into foreclosure, but the rates at which these loans exit out of foreclosure.
Data from the report also revealed that top five states with the highest share of loans in foreclosure were judicial, with the exception of California. The five states – Florida (24.2 percent), California (10.2 percent), Illinois (6.6 percent), New York (6.2 percent), and New Jersey (5.4 percent), make up 52.6 percent of the share of loans in foreclosure.
Though, Fratantoni noted that California is turning around more quickly than other states.
California, which held 12.8 percent of the share of loans in foreclosure last year, dropped 2.6 percent this quarter, compared to the 0.8 and 1 percent drop for the other four states over the year.
When asked about the impact of the AG settlement on the foreclosure process during a conference call, Brinkmann, said that he thinks we will see a drop in foreclosure inventory numbers, and when moving into foreclosure sale or REO, we might see some speed up eventually.
Capital Economics also said that data from RealtyTrac shows a slight rise in foreclosure filings in January, which could mean foreclosures are being processed more quickly, added with the recent settlement which may speed up the foreclosure process.