Mortgage delinquency rates have taken a sharp drop, even as the percentage of mortgages in foreclosure has hit an all-time high.

Residential mortgage delinquencies fell by 10 percent in the fourth quarter of 2010, to an overall rate of 8.22 percent of all outstanding loans, according to figures released today by the Mortgage Bankers Association. That's a decline of 91 basis points from the third quarter rate of 9.13 percent.

Meanwhile, the percentage of mortgages in foreclosure rose to 4.63 percent of all home loans, matching the highest figure ever reported by the MBA, up from 4.39 percent in the third quarter. The increase was attributed to fewer completed foreclosures coming off the books due to temporary moratoriums as banks addressed problems with properly documenting foreclosure claims.

Early delinquencies drop to pre-recession levels

"These latest delinquency numbers represent significant, across-the-board decreases in mortgage delinquency rates in the U.S." said Jay Brinkmann, MBA chief economist. "Total delinquencies, which exclude loans in the process of foreclosure, are now at their lowest level since the end of 2008. Mortgages only one payment past due are now at the lowest level since the end of 2007, the very beginning of the recession."

Even more significantly, Brinkmann said, serious mortgage delinquencies of 90 days or more have fallen from their all-time high of 5.02 percent in early 2010 to 3.63 percent by year's end, a 28 percent decline over the course of the year.

"While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner," Brinkmann said. "Absent a significant economic reversal, the delinquency picture should continue to improve during 2011," he added.

New foreclosures trend up

The rise in homes in foreclosure occurred even though the number of foreclosure starts fell slightly in the fourth quarter. The record-tying 4.63 percent rate of homes in foreclosure was last reached in the first quarter of 2010.

Even as the number of delinquent mortgages has declined, the number of foreclosure starts has been trending upward over the past year, as banks address a backlog of bad loans. Foreclosure starts have increased by seven basis points over the past year, to 1.27 percent of outstanding loans.

The impact has been broad, with 45 states seeing increases in foreclosure starts on a year-over-year basis, with the largest increases in Washington, Rhode Island and the District of Columbia. At the same time, Florida, which has been one of the states hit hardest by foreclosures, saw one of the largest annual declines in new foreclosures, along with Connecticut and Maryland as well.

Published on February 18, 2011