Foreclosure, delinquency rates decline

By:: Peter King | November 18, 2010

Both mortgage delinquency and foreclosure rates declined in the third quarter of the year, even as the rate of new foreclosures showed an significant gain, according to figures released today by the Mortgage Bankers Association.

A seasonally adjusted 9.13 percent of residential mortgages were reported delinquent in the third quarter of the year, down from 9.85 percent previously. Homes in foreclosure declined to 4.39 percent of outstanding mortgages, down from 4.57 percent in the second quarter of the year.

Both also represented annual declines of 51 and eight basis points, respectively, from the third quarter of 2009.

Newly initiated foreclosures up

At the same time, new foreclosure actions showed a sharp increase in the third quarter, affecting 1.34 percent of outstanding mortgages, up from 1.11 percent in the second quarter. The figure represents an annual decline of eight basis points from the level of 1.42 percent in the third quarter of 2009. All figures are for residential mortgages on properties of one to four units.

“Mortgage delinquency rates declined over the quarter and over the past year, due primarily to a large decline in the 90+ day delinquency rate,” said Michael Fratantoni, MBA 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.”

Fratantoni said that while October’s government employment report was positive, the job market improved only slightly in the third quarter of the year, so while delinquencies declined, the overall rate remains high. With only modest improvements in employment expected over the coming year, Fratantoni said that only modest improvements in the mortgage delinquency rate were expected as well.

No effect yet from robo-signing controversy

He said the foreclosure documentation controversy, which broke in late September, is too recent to have made a significant impact on the third quarter’s foreclosure statistics, although it could well result in higher inventories of foreclosed properties in the fourth quarter of the year and early 2011.

Slowing the rate of bank repossessions could help reduce the inventory of homes for sale, which is currently nearly 4 million properties, Fratantoni said. However, he added that those properties will likely come onto the market before long, so it would only be a delay rather than a change in the underlying economics.

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