Delinquencies Begin to Dip as Foreclosures Take Off
The delinquency rate for mortgage loans on one- to four-unit residential properties decreased to a seasonally adjusted rate of 9.13 percent of all loans outstanding as of the end of the third quarter of 2010, a decrease of 72 basis points from the second quarter of 2010, and a decrease of 51 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased one basis point to 9.39 percent this quarter from 9.40 percent last quarter. 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 on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 13.78 percent on a non-seasonally adjusted basis, a 19 basis point decline from 13.97 percent last quarter. “Mortgage delinquency rates declined over the quarter and over the past year, due primarily to a large decline in the 90-plus day delinquency rate," said Michael Fratantoni, MBA’s vice president of research and economics. "The number of loans in foreclosure also dropped, bringing the serious delinquency rate to its lowest level since the second quarter of 2009. However, the foreclosure starts rate increased for all loan types and the foreclosure starts rate for prime fixed loans set a new record high in the survey, as more loans entered the foreclosure process." On a seasonally adjusted basis, the overall delinquency rate decreased, driven by decreases in the rate for most loan types except sub-prime ARM loans. The seasonally adjusted delinquency rate stood at 5.17 percent for prime fixed loans, 13.31 percent for prime ARM loans, 23.84 percent for sub-prime fixed loans, 29.80 percent for sub-prime ARM loans, 12.62 percent for FHA loans, and 7.44 percent for VA loans. The non-seasonally adjusted foreclosure starts rate increased for all loan types. The foreclosure starts rate increased 22 basis points for prime fixed loans to 0.93 percent, which sets a new record high in the survey for the prime fixed category. The basis point increase is also the largest increase on record for this loan category. Prime fixed loans make up the majority of loans outstanding in the market, with a share of almost 64 percent. The foreclosure starts rate increased 40 basis points for prime ARM loans to 2.36 percent, 48 basis points for sub-prime fixed loans to 2.78 percent, 70 basis points for sub-prime ARM loans to 4.09 percent, 22 basis points for FHA loans to 1.24 percent, and 16 basis points for VA loans to 0.86 percent." 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 40 basis points for prime fixed loans, 64 basis points for sub-prime fixed loans, 182 basis points for FHA loans, and 65 basis points for VA loans. The delinquency rate increased 91 basis points for prime ARM loans and 131 basis points for sub-prime ARM loans. The non-seasonally adjusted foreclosure starts rate increased 22 basis points for prime fixed loans and 11 basis points for sub-prime fixed loans, but is down 109 basis points for prime ARM loans, 83 basis points for sub-prime ARM loans, seven basis points for FHA loans, and one basis point for VA loans, on a year over year basis. Thirty three states saw increases in the rate of foreclosure starts on a year over year basis, with the largest increases coming in Washington, Indiana and South Carolina. The largest decreases were in Nevada, California, and Florida. Florida and Nevada continue to top the rankings in terms of foreclosure starts and loans in foreclosure across most loan types. “Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes," said Fratantoni. "Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.” For more information, visit www.mortgagebankers.org.