Delinquencies, Foreclosures back to Early Recession Levels

All four measures of distress in the housing market dropped to post-crash lows during the third quarter of 2013 the Mortgage Bankers Association (MBA) said today.  The national delinquency rate, serious delinquencies, loans in foreclosure, and foreclosure starts all registered significant declines during the quarter.

According to MBA's National Delinquency Survey (NDS) the delinquency rate - all loans that are 30 days or more past due but not yet in foreclosure, decreased to a seasonally adjusted rate of 6.41 percent.  This was a drop of 55 basis points (bp) from the previous quarter and 99 bp from one year earlier and was the lowest the delinquency rate since the second quarter of 2008.

Loans in the process of foreclosure (foreclosure inventory) were also back to 2008 levels.  The inventory stood at 3.08 percent of the nation's outstanding mortgage loans, down 25 bp from the second quarter and 99 bp from the third quarter of 2012.

The rate at which foreclosure actions were initiated fell from 0.64 percent to 0.61 percent, the lowest level since 2007 while serious delinquencies, loans that are more than 90 days past due or in foreclosure also tumbled.  Serious delinquencies were down 23 basis points from last quarter and 138 bp from a year ago to a rate of 5.65 percent.  MBA cautioned however that, as was the case in the second quarter, one large specialty servicer who has received large numbers of loan transfers (assumed to be distressed) does not participate in the survey.

The combined total of loans that have missed one or more payments or are in foreclosure represent 9.75 of outstanding loans, down 38 bp quarter-over-quarter and 196 bp from the same period in 2012.  This is the lowest rate in five years.

Loans backed by the Veterans Administration sunk to the lowest delinquency rate since 1980 in part, MBA said, because 40 percent of its portfolio are loans originated since 2007. 

Jay Brinkmann, MBA's Chief Economist and SVP of Research and Education said, "The degree to which the mortgage delinquency and foreclosure problem has changed over the last five years is perhaps best illustrated by the fact that last quarter New Jersey led the nation in the increase in the percentage of foreclosure actions filed, followed by Delaware, Maryland and Indiana.  While Florida still leads the nation in the percentage of loans in foreclosure, that percentage is falling.  In contrast, New York and New Jersey were the only two states that saw an increase in the percentages of loans in foreclosure.

"States with judicial foreclosure systems still account for most of the loans in foreclosure, Brinkmann continued.  While the percentages of loans in foreclosure dropped in both judicial and nonjudicial states, the average rate for judicial states was 5.28 percent, more than triple the average rate of 1.66 percent for nonjudicial states.

He said that despite considerable improvement in home prices, only in a few states have prices returned to pre-crash levels.  This is noteworthy because about three quarters of delinquent loans were originated prior to 2007.  Even if the economy continues to improve he said these loans are more likely to proceed to foreclosure in the case of a divorce, illness or job loss because of the lack of equity in the property.  This will keep the foreclosure rates above historical norms for a few more years despite the strong credit standards of recent vintages, he said.

"Finally, mortgage delinquencies are the result of local economic conditions, not the cause of them.  Clearly local home price bubbles and the temporary injections from cash out refinancing and speculation temporarily boosted some areas and made the subsequent economic crash even worse, but we are now at a point where local economic growth and population movements will determine housing demand and mortgage performance.  Those areas with the weaker climates for economic growth will see home value and delinquency problems that are beyond the abilities of the mortgage industry and housing regulators to impact in a meaningful way," Brinkmann said.