Delinquency Rate for Mortgages Decrease


November 22, 2010

A larger share of homes entered the foreclosure process in the third quarter, though the delinquency rate for mortgages dropped, the Mortgage Bankers Association recently reported.

Mortgages at least one payment past due or in foreclosures fell to 13.78% of all mortgages outstanding in the third quarter, down from 13.97% in the second quarter and from 14.41% a year ago, on a non-seasonally adjusted basis, according to the Washington-based group’s latest delinquency survey.

But foreclosure starts hit 1.34%, up from 1.11% the previous quarter and down from 1.42% a year ago. And the percentage of prime, fixed-rate mortgages entering the foreclosure process hit a record high, the group’s data showed.

The decline in delinquencies is a positive for the housing market, yet it reflects in large part the “natural progression” of mortgages into the foreclosure process, said Michael Fratantoni, the Mortgage Bankers Association vice president of research and economics.

The delinquency rate is also driven by employment, and modest improvement in the U.S. job market over time will cause slow and gradual improvement in the delinquency numbers, he said.

The delinquency survey covers 44 million mortgages on one- to four-unit residential properties, representing 88% of all first-lien mortgages outstanding in the country.

“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,” Fratantoni said in a news release.

“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 record high in the survey, as more loans entered the foreclosure process,” Fratantoni said.

Foreclosure inventory fell to 4.39% in the third quarter, down from 4.57% in the second quarter and from 4.47% in the third quarter of 2009.

And the delinquency rate—loans that are at least one payment past due but not in foreclosure—was 9.13% of all loans outstanding on a seasonally adjusted basis, less than the 9.85% rate in the second quarter and the 9.64% rate in the third quarter of 2009. On a non-seasonally adjusted basis, the rate was 9.39%, off from the second quarter’s 9.40%.

The mortgage industry’s paperwork issue that caused some foreclosures to be stalled likely didn’t affect the figures compiled for the third quarter, but it will affect the foreclosure inventory rate in the fourth quarter and early next year, Fratantoni said.

“We think there is going to be upward pressure on the foreclosure inventory rate because of the pause that occurred in October and is still occurring for some servicers today,” he said on a conference call with reporters.

“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.

“The servicers that halted foreclosure sales temporarily may show higher foreclosure inventory numbers in the fourth quarter of 2010 and in early next year than would otherwise have been the case,” Fratantoni said in the release.

“Any drop in foreclosure sales over the next few quarters may actually reduce the inventory of homes on the market, which is still quite swollen, with almost four million properties currently listed. However, these foreclosed homes are likely to come on the market in the medium term, so it is only a delay rather than a change in the underlying economics,” he said.

Also during the call, Fratantoni said that he expects sales of existing homes to be around 4.8 million in 2011—roughly the number of homes sold in 2010. While the sales won’t be fast enough to bring down the overhang of supply on the U.S. market, he expects that next year will see home prices stabilizing.