Foreclosures up... delinquencies down

MBA - foreclosures up delinquencies down

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 8.22% of all loans outstanding as of the end of the fourth quarter of 2010, a decrease of 91 basis points from the third quarter of 2010, and a decrease of 125 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 46 basis points to 8.93% this quarter from 9.39% last quarter.  The percentage of loans on which foreclosure actions were started during the fourth quarter was 1.27%, down seven basis points from last quarter and up seven basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. 

The percentage of loans in the foreclosure process at the end of the fourth quarter was 4.63%, up 24 basis points from the third quarter of 2010 and up five basis points from one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.57%, a decrease of 13 basis points from last quarter, and a decrease of 110 basis points from the fourth quarter of last year.  The combined percentage of loans in foreclosure or at least one payment past due was 13.56% on a non-seasonally adjusted basis, a 22 basis point decline from 13.78% last quarter.

Jay Brinkmann, MBA's chief economist said "These latest delinquency numbers represent significant, across the board decreases in mortgage delinquency rates in the US.  Total delinquencies, which exclude loans in the process of foreclosure, are now at their lowest level since the end of 2008.  Mortgages only one payment past due are now at the lowest level since the end of 2007, the very beginning of the recession.  Perhaps most importantly, loans three payments (90 days) or more past due have fallen from an all-time high delinquency rate of 5.02% at the end of the first quarter of 2010 to 3.63% at the end of the fourth quarter of 2010, a drop of 139 basis points or almost 28% over the course of the year.  Every state but two saw a drop in the 90-plus day delinquency rate and the two increases were negligible." 

"While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner.  Despite continued high levels of unemployment, the economy did add over 1.2 million private sector jobs during 2010 and, after remaining stubbornly high during the first half of 2010, first time claims for unemployment insurance fell during the second half of the year.  Absent a significant economic reversal, the delinquency picture should continue to improve during 2011, Brinkmann said. 

Mike Fratantoni, MBA's vice president for single family research said "While the foreclosure starts rate fell during the fourth quarter, the percentage of loans in foreclosure rose to equal the all-time high. The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale. As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October. These issues caused a temporary halt in foreclosure sales, particularly in states with judicial foreclosure regimes, such as New Jersey, Florida, and Illinois. 

With fewer loans exiting the foreclosure process through sales, the foreclosure inventory rate naturally increased, even as fewer foreclosure starts meant that fewer loans entered the foreclosure process in the fourth quarter."  "The share of loans in foreclosure in California and Florida combined was 36.0%, a decrease from 37.3% in the third quarter, and 39.3% a year ago.  Over 24% of the loans in Florida are one payment or more past due or in the process of foreclosure, the highest rate in the nation, followed by Nevada at over 22%, compared to an average of 13.6% for the nation.  Only eleven states saw an increase in their foreclosure start rate with Maryland seeing the largest increase." 

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types. The seasonally adjusted delinquency rate stood at 4.51% for prime fixed loans, 11.23% for prime ARM loans, 21.26% for subprime fixed loans, 25.32% for subprime ARM loans, 12.26% for FHA loans, and 6.67% for VA loans.  The% of loans in foreclosure, also known as the foreclosure inventory rate, increased 24 basis points to 4.63%, which ties the survey's record high, last reached in the first quarter of 2010. All loan types saw an increase in the% of loans in foreclosure. The foreclosure inventory rate for prime fixed loans, which, make up the largest portion of the survey (accounting for 63% of the loans), increased 22 basis points to 2.67%.

This was the highest rate recorded for prime fixed in the history of the survey.  The rate for prime ARM loans increased 17 basis points from last quarter to 10.22%. Subprime fixed loans saw an increase of 104 basis points to 9.92%, which is a new record high in the survey. The rate for subprime ARM loans increased 26 basis points to 22.04%, while the rate for FHA loans increased eight basis points to 3.30% and the rate for VA loans increased 21 basis points to 2.35%. 

The foreclosure starts rate decreased nine basis points for prime fixed loans to 0.84%, five basis points for subprime fixed loans to 2.73%, and 22 basis points for FHA loans to 1.02%.  The foreclosure starts rate increased two basis points for prime ARM loans to 2.38%, 15 basis points for subprime ARM loans to 4.24%, and two basis points for VA loans to 0.88%.  Given the challenges in interpreting the true seasonal effects in these data when comparing quarter to quarter changes, it is important to highlight the year over year changes of the non-seasonally adjusted results. The non-seasonally adjusted delinquency rate decreased for all loan types since the fourth quarter of 2009. The delinquency rate decreased 135 basis points for prime fixed loans, 124 basis points for prime ARM loans, 284 basis points for subprime fixed loans, 152 basis points for subprime ARM loans, 154 basis points for FHA loans, and 91 basis points for VA loans. 

The non-seasonally adjusted foreclosure starts rate increased 21 basis points for prime fixed loans, 26 basis points for prime ARM loans, and seven basis points for VA loans, but is down 47 basis points for subprime ARM loans, 26 basis points for FHA loans, and remains unchanged for subprime fixed loans on a year over year basis.  Forty five states saw increases in the rate of foreclosure starts on a year over year basis, with the largest increases coming in Washington, Rhode Island and the District of Columbia.  The largest decreases were in Florida, Connecticut, and Maryland.  Nevada and Arizona top the rankings in terms of foreclosure starts and loans in foreclosure across most loan types.

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