The March Mortgage Monitor report released by Lender Processing Services (LPS) found that the new problem-loan rate (seriously delinquent mortgages that were current six months ago) has fallen below 1% for the first time since 2007. At 0.84%, the rate is approaching pre-crisis levels and nearing the conditions of 2000-2004, when the rate averaged 0.55%.
However, as LPS Applied Analytics senior vice president Herb Blecher explains, borrowers' equity position is still a key indicator of their propensity to default.
‘There has always been a clear correlation between higher levels of negative equity and new problem loan rates,’ Blecher says. ‘Looking at the March data, we see that borrowers with equity are actually outperforming the national average – at 0.6 percent, this group is quite close to pre-crisis norms. The further underwater a borrower gets, the higher those problem rates rise. Borrowers with loan-to-value (LTV) ratios of just 100-110 percent are actually defaulting at more than twice the national average. For those 50 percent or more underwater, we see new problem rates of 4 percent.
‘Still, the overall equity trend has been a very positive one,’ Blecher continues. ‘LPS' latest data shows that the share of loans with LTVs greater than 100 percent has fallen 41 percent from a year ago. In total, there were approximately 9 million such loans, or about 18 percent of active mortgages. Some states, including the so-called 'sand states' (Arizona, Florida, Nevada and California), are still well above the national level, at an average 28 percent, but they too have seen improvement over the last year, with negative equity dropping over 40 percent across those four states since January 2012.’
The March data also showed that on the national level, foreclosure starts were down 8.2% month-over-month, while foreclosure sales rose 10.1%.
LPS looked more specifically at the situation in California, where the recent passage of the Homeowner Bill of Rights appears to have slowed down the foreclosure sale process considerably. In the first quarter of 2013, foreclosure sales nationally (excluding California) increased 13% from the fourth quarter of 2012, whereas in California they fell 35% during that same period.
However, the Homeowner Bill of Rights does not seem to have had a similar effect on the state's foreclosure starts, which are in line with the rest of the nation's decline in referral activity following the attorneys general mortgage settlement and Federal Housing Administration modification initiatives.
Other key results from LPS' latest Mortgage Monitor report include the following:
- The total U.S. loan delinquency rate is 6.59%;
- The month-over-month change in the delinquency rate is -3.13%;
- The total U.S. foreclosure pre-sale inventory rate is 3.37%;
- The month-over-month change in the foreclosure pre-sale inventory rate is 0.41%;
- States with highest percentage of non-current loans are Florida, New Jersey, Mississippi, Nevada and New York; and
- States with the lowest percentage of non-current loans are Montana, Alaska, Wyoming, South Dakota and North Dakota.