Although mortgage delinquency and foreclosure rates continued to fall in the third quarter, according to the Mortgage Bankers Association's (MBA) Third Quarter National Delinquency Survey, MBA Chief Economist Jay Brinkmann says there could be a new wave of foreclosures coming in 2014.
‘While home prices have shown some considerable improvement, in only a small number of states are they back above their pre-2007 levels,’ Brinkmann says in a statement. ‘This is noteworthy because roughly three-quarters of all seriously delinquent loans were originated in 2007 or earlier. So, even if the economy continues to improve, those loans are more likely to proceed to foreclosure in the event of a divorce, illness or loss of a job because of lack of borrower equity. This will keep the foreclosure rates above historical norms for a few more years despite the strong credit standards of recent vintages.’
Still, according to the MBA's report, the delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.41% of all loans outstanding in the third quarter – the lowest level since the second quarter of 2008.
The delinquency rate dropped by 55 basis points from the second quarter and 99 basis points compared to the third quarter of 2012.
Foreclosures in the third quarter represented 3.08% of all loans outstanding, down 25 basis points from the second quarter and 99 basis points from a year ago – also the lowest rate since 2008, the MBA reports.
The percentage of loans on which foreclosure actions were started during the third quarter decreased by three basis points, to 0.61% from 0.64% – the lowest level since early 2007.
As Brinkmann points out, increasing delinquency and foreclosure rates are likely to be isolated on the local level – in other words, some metro areas will have higher rates compared to others.
‘Mortgage delinquencies are the result of local economic conditions, not the cause of them,’ Brinkmann says. ‘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.’
To read the full report, click here.