Mortgage Delinquency Rates Decline: MBA
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- Peter King | February 22, 2010
Mortgage delinquencies on all loan types declined in the fourth quarter of 2009, raising hopes that the end of the foreclosure crisis may be in sight.
Total delinquencies fell to 9.47 percent of all outstanding residential mortgages, down from 9.64 percent in the third quarter, according to the recently released Mortgage Bankers Association (MBA) National Delinquency Survey.
The rate of new foreclosure starts also declined, to 1.20 percent of outstanding mortgages, down from 1.42 percent in the third quarter of 2009. However, the total share of homes in foreclosure increased, rising to 4.58 percent of outstanding mortgages in the fourth quarter, up from 4.47 percent.
"We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007," said Jay Brinkmann, MBA's chief economist.
No seasonal upturn in past-due loans
Brinkmann said one of the most hopeful signs of recovery is that a sharp spike in short-term mortgage delinquencies that normally occurs at the end of the year due to seasonal factors did not materialize in the fourth quarter. Instead the 30-day delinquency rate actually declined, falling from 3.79 percent to 3.63 percent in the fourth quarter of the year. If seasonal patterns hold, an even larger decrease should be seen in the first quarter of 2010, he said.
"This drop is important because 30-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures,” he said. “With fewer new loans going bad, the pool of seriously delinquent loans and foreclosures will eventually begin to shrink once the rate at which these problems are resolved exceeds the rate at which new problems come in. It also gives us growing confidence that the size of the problem now is about as bad as it will get.”
Serious delinquecies a growing problem
Brinkmann said the drop in foreclosure starts was also a good sign, but may be only temporary due to continuing increases in seriously delinquent loans 90 days or more past due, which now make up half of all delinquent loans.
"Despite the drop in short-term delinquencies, foreclosure rates could continue to climb, however, based on the ability of borrowers 90 days or more delinquent to solve their problems,” Brinkmann said. “A sizable number of the loans in the 90+ day delinquent bucket are in loan modification programs. They are carried as delinquent until borrowers demonstrate they will make the payments agreed to in the plans.”
FHA, VA rates improving
Overall delinquency rates were down in all categories, include prime, subprime, VHA and FHA loans. Though still quite high, the seasonally adjusted delinquency rate on subprime loans fell more than a full percentage point, from 26.42 to 25.26 percent. The seasonally adjusted delinquency rate on prime loans dropped slightly, to 6.73 percent from 6.84 percent, while delinquencies on FHA loans dropped to 13.57 percent from 14.36 percent, and VA loan delinquencies fell to 7.41 percent from 8.08 percent.
Delinquency rates on both FHA and VA loans have declined over the past year, by 16 and 11 basis points respectively, while increasing on subprime and prime loans by 338 and 167 basis points, respectively. One hundred basis points equal one percentage point.
The MBA cautions that the seasonal adjustments it uses for loan delinquency rates were developed for use during more typical economic conditions and may be distorted by the extreme conditions now prevalent. The foreclosure data presented is not seasonally adjusted.
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