The residential mortgage delinquency rate dropped to a seasonally adjusted rate of 9.85% of all loans outstanding as of the end of the second quarter – a decrease of 21 basis points (bps) from the first quarter and an increase of 61 bps from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey.
The delinquency rate includes loans that are at least one payment past due but not loans that are in the process of foreclosure. The percentage of loans on which foreclosure actions were started during the second quarter was 1.11% (down 12 bps from the first quarter), and the percentage of loans in the foreclosure process at the end of the second quarter was 4.57% (down 6 bps from the first quarter).
The combined percentage of loans in foreclosure or at least one payment past due was 13.97% on a non-seasonally adjusted basis – a 4-bp decline from 14.01% in the first quarter.
The second-quarter report is a ‘mixture of somewhat good news and somewhat bad news,’ according to the MBA's chief economist, Jay Brinkmann.
The rate of 90+ day delinquencies saw its biggest quarterly drop in the survey's 41-year history, and the rate of serious delinquencies (i.e., the percentage of 90+ day delinquencies plus loans in the process of foreclosure) fell 43 bps from the first quarter to 9.11%. The 30-day delinquency rate, however, rose from 3.31% in the first quarter to 3.51% in the second quarter.
‘The fact that both the 90+ [day] delinquency rate fell and the foreclosure-start rate fell means that a significant number of these seriously delinquent loans have been successfully modified and reclassified as performing, current loans," Brinkmann said in a press statement released Thursday. "The disappointing news is that, after declining since the beginning of 2009, the rate of short-term delinquencies is going up, and the increase in these short-term delinquencies may ultimately drive the foreclosure measures back up.’
The drop in the serious delinquencies could be attributed to three factors, Brinkmann told reporters on a conference call Thursday morning. First, because the 30-day bucket decreased through last year, fewer loans wound up in later-stage delinquencies.
Second, the spur in home purchasing seen late last year and earlier this year – triggered by the federal home-buyer tax credit – led to the payoff of a population of delinquent loans.
Additionally, ‘some loan modifications are, in fact, working,’ Brinkmann said. Many modification programs, including the Home Affordable Modification Program, require servicers to continue reporting modified loans as delinquent until they complete a trial stage, at which point they become reperforming.
Brinkmann also noted that two of the three factors listed – the tax-credit-inspired home buying and the drop-off in early-stage delinquencies – have ended, meaning an increase in later-stage delinquencies and foreclosures is possible.
The causes of the increased rate in 30-day delinquencies are twofold, the MBA adds. First, 30-day delinquencies are very closely tied to first-time claims for unemployment insurance. The number of first-time claims fell through most of 2009 but leveled off in 2010, and have started to rise again. This increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years have become delinquent again because those borrowers, by definition, have weak credit.
"Ultimately, the housing story – whether it is delinquencies, homes sales or housing starts – is an employment story,’ Brinkmann said in the press statement. ‘Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers.’