The number of delinquencies and loans in foreclosure decreased in the third quarter, but foreclosure starts rose for all loan types, the Mortgage Bankers Association (MBA) reports in its quarterly National Delinquency Survey. The foreclosure-start rate for prime fixed-rate loans hit a new record high.
The delinquency rate decreased to a seasonally adjusted rate of 9.13% of all loans outstanding as of the end of the third quarter – a 72-basis-point (bp) drop from the second quarter.
The percentage of loans on which foreclosure actions were started during the third quarter was 1.34% – up 23 bps from last quarter. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39% – down 18 bps from the second quarter. The percentage of loans that were 90 days or more past due or in the process of foreclosure was 8.7% – a decrease of 41 bps from the second quarter.
Mortgage delinquencies most often correlate with household loss of income, says Michael Fratantoni, the MBA's vice president of research and economics.
"Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter. While there was a small improvement in the delinquency rate, the level of that rate remains quite high,’ he says. ‘As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate."
The effect of temporary foreclosure freezes relating to documentation problems likely will not be observed in the MBA's data until the fourth-quarter numbers are released.
‘The servicers that halted foreclosure sales temporarily may show higher foreclosure inventory numbers in the fourth quarter of 2010 and in early next year than would otherwise have been the case,’ Fratantoni says. ‘Any drop in foreclosure sales over the next few quarters may actually reduce the inventory of homes on the market, which is still quite swollen, with almost 4 million properties currently listed. However, these foreclosed homes are likely to come on the market in the medium term, so it is only a delay rather than a change in the underlying economics."
Subprime and prime adjustable-rate mortgages are making up a smaller portion of the distressed-loan population, while the number and proportion of Federal Housing Administration (FHA) loans have increased significantly, Fratantoni says.
‘Prime fixed and FHA loans currently make up almost 78 percent of loans outstanding, and these loan types now account for more than half of the foreclosures started in the quarter, compared to 39 percent a year ago,’ he says.
SOURCE: Mortgage Bankers Association