Foreclosure actions were initiated on 1.37 percent of first mortgages during the first quarter of 2009, according to the Mortgage Bankers Association. This was a 29 basis point increase over the fourth quarter of 2008 and a 36 basis point increase from one year ago. Both the level of foreclosures started and the size of the quarter over quarter increase are record highs.
According the MBA's National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties was 8.22 percent on a non-seasonally adjusted basis, down 41 basis points from 8.63 percent in the fourth quarter of 2008. Delinquency rates always decline in the first quarter of the year due to a variety of seasonal factors. After accounting for these factors, the seasonally adjusted delinquency rate was 9.12 percent of all loans outstanding as of the end of the first quarter of 2009, up 124 basis points from the fourth quarter of 2008, and up 277 basis points from one year ago.
The seasonally adjusted rate is the highest in the MBA's records going back to 1972 and the unadjusted rate is the highest recorded in the first quarter of any year back to 1972.
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 first quarter was 3.85 percent, an increase of 55 basis points from the fourth quarter of 2008 and up 138 basis points from one year ago. Both the foreclosure inventory percentage and the quarter to quarter increase are record highs.
The combined percentage of loans in foreclosure and at least one payment past due, meaning the percentage of mortgage holders not current on their mortgages, was 12.07 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.
"The increase in the foreclosure number is sobering but not unexpected. The rate of foreclosure starts remained essentially flat for the last three quarters of 2008 and we suspected that the numbers were artificially low due to various state and local moratoria, the Fannie Mae and Freddie Mac halt on foreclosures, and various company-level moratoria," said Jay Brinkmann, MBA's chief economist. "Now that the guidelines of the administration's loan modification programs are known, combined with the large number of vacant homes with past due mortgages, the pace of foreclosures has stepped up considerably."
"In looking at these numbers, it is important to focus on what has changed as well what continue to be the key drivers of foreclosures. What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to the prime fixed-rate loans. The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans. More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults.
"What has not changed, however, is the oversized impact of California, Florida, Arizona and Nevada in driving up the national numbers. Those states continue to account for about 46 percent of the foreclosure starts in the country, and represented 56 percent of the increase in foreclosure starts, including half of the increase in prime fixed-rate foreclosure starts.
"It is difficult to overstate the severe impact home price declines have had on mortgage performance in those four states. 10.6 percent of the mortgages in Florida are now somewhere in the process of foreclosure. In Nevada it is 7.8 percent, Arizona 5.6 percent and California 5.2 percent.
"In the first three months of this year, foreclosure actions were started on 3.4 percent of the mortgages in Nevada, 2.8 percent of the mortgages in Florida, 2.5 percent of the mortgages in Arizona and 2.2 percent of the loans in California. In comparison, the states with the highest foreclosure rates in the hard hit Midwest were Michigan and Illinois at 1.5 percent and Indiana and Ohio at 1.3 percent.
"While the national foreclosure start rate was 1.37 percent in the first quarter, in California, Florida, Nevada and Arizona it was 2.45 percent. Absent those four states, the national rate would have been 1.01 percent.
"Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve. MBA's forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010. Since changes in mortgage performance lag changes in the level of employment, it is unlikely we will see much of an improvement until after that," said Brinkmann.
Change from last quarter (fourth quarter of 2008)
The seasonally-adjusted delinquency rate increased 100 basis points to 6.06 percent for prime loans, increased 307 basis points to 24.95 percent for sub-prime loans, increased 11 basis points to 13.84 percent for FHA loans, and increased 69 basis points to 8.21 percent for VA loans. Seasonally-adjusted rates should be viewed with a degree of caution because the statistical models behind the adjustments were estimated based on a much more benign environment. Since the current levels of delinquencies are far outside the range of most of the values used to build the models, the seasonally adjusted numbers may considerably overestimate or even underestimate the true long-term trends.
The percentage of loans in the foreclosure process increased 61 basis points to 2.49 percent for prime loans, and increased 63 basis points for sub-prime loans to 14.34 percent. FHA loans saw a 33 basis point increase in the foreclosure inventory rate to 2.76 percent, while the foreclosure inventory rate for VA loans increased 27 basis points to 1.93 percent.
The non-seasonally-adjusted foreclosure starts rate increased 26 basis points to 0.94 percent for prime loans and increased 69 basis points for sub-prime loans to 4.65 percent. The rate increased 15 basis points for FHA loans to 1.10 percent and increased seven basis points for VA loans to 0.72 percent.
The seriously delinquent rate, the non-seasonally-adjusted percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process.
Compared with last quarter, the seriously delinquent rate increased for all loan types. The rate increased 96 basis points for prime loans to 4.70 percent, increased 177 basis points for subprime loans to 24.88 percent, increased 39 basis points for FHA loans to 7.37 percent, and increased 30 basis points for VA loans percent to 4.42 percent.
Change from last year (first quarter of 2008)
On a year-over-year basis, the seasonally-adjusted delinquency rate increased for all loan types. The delinquency rate increased 235 basis points for prime loans, increased 616 basis points for sub-prime loans, increased 112 basis points for FHA loans, and increased 99 basis points for VA loans.
The percentage of loans in the foreclosure process increased 127 basis points for prime loans and 360 basis points for sub-prime loans. The rate increased 36 basis points for FHA loans and 69 basis points for VA loans.
The non-seasonally adjusted foreclosure starts rate increased 39 basis points for prime loans, 57 basis points for subprime loans, 14 basis points for FHA loans, and 21 basis points for VA loans.
The seriously delinquent rate was 271 basis points higher for prime loans and 846 basis points higher for sub-prime loans. The rate also increased 178 basis points for FHA loans and 154 basis points for VA loans.
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