Surge in FHA Foreclosure Starts And Rising Delinquency In 2nd Quarter

The one-to-four family residential delinquency rate shot up 18 basis points during the second quarter to a seasonally adjusted rate of 7.58 percent of all mortgage loans outstanding according to the Mortgage Bankers Association (MBA).  The new rate is still 86 basis points below that in the second quarter of 2011.  The group's National Delinquency Survey released this morning put the unadjusted rate at 7.35 percent, 41 basis points higher than the 6.94 rate in the first quarter.  According to MBA, delinquency rates typically increase during the quarter 1-quarter 2 time period.  The rate reflects mortgages that are at least 30 days past due but not in foreclosure. 

During the quarter foreclosure actions were started against another 0.96 percent of mortgages, the same rate as in both the previous quarter and one year earlier.  Loans in some stage of foreclosure now total 4.27 percent of active mortgages, down 12 basis points quarter over quarter and 16 basis points lower than in the same period in 2011.

The total of delinquent loans and loans in foreclosure is now 11.62 percent, 29 basis points higher than in Quarter 1 and 92 basis points lower than one year earlier.

The quarterly increase hit almost all loan types and most measures of delinquency (30, 60, and 90 days or in foreclosure) within those loan types on both a seasonally adjusted and unadjusted basis.  Delinquency figures given here are seasonally adjusted and foreclosure inventory numbers are unadjusted.  Changes are in basis points

Jay Brinkmann, MBA's Chief Economist said, "Mortgage delinquencies were up only slightly over the last quarter.  Perhaps more important than the small size of the increase, however, is the fact that it reversed the trend of fairly steady drops in delinquencies we have seen over the last year.  This is consistent with the slowdown in the economy during the first half of the year and our stubbornly high unemployment rate.  Whether this is just a temporary blip or a sign of a true change in direction for mortgage performance will fundamentally depend on the direction of employment over the remainder of the year."

Brinkmann said that the rate of new foreclosure filings was down for most loan types but a surge in FHA foreclosure starts overwhelmed those numbers.   "This quarter's rate set an all-time record for FHA loans, but it was only slightly higher than the previous high set in 2010.  The jump was due to one or more large servicers of FHA loans restarting foreclosure actions on delinquent FHA loans after the completion of the Department of Justice review and the mortgage servicing settlement.  It does not, however, represent a significant decline in FHA performance.  These loans had been considered seriously delinquent for some time and have now been moved from the 90-plus day delinquency bucket to the in-foreclosure bucket, with little net change."

Brinkmann said that Maryland had the highest rate of new foreclosure actions, more than double the national average.  Maryland's statistic was also a factor of the resumption of activity after the servicing settlement.  Maryland's surge in foreclosure starts was matched by the biggest drop of all states in the number of its loans that were 90 days or more past due.  Washington was another state where new rules that delayed foreclosures earlier are now resulting in statistical bulges as activity resumes.

Florida continues to lead the nation with 13.7 percent of mortgages in foreclosure, more than triple the national average, followed by New Jersey at 7.7 percent, Illinois at 7.1 percent, and New York at 6.5 percent.  In contrast, two of the states that were hardest hit, Arizona and California, now have rates of 3.2 and 3.1 percent respectively, both more than a full percentage point lower than the national average.