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Servicing

Delinquency and foreclosure rates continue to improve

MBA: Judicial states still weigh on foreclosure inventory

foreclosure paper

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.11% of all loans outstanding at the end of the first quarter of 2014, the lowest level since the fourth quarter of 2007. 

The delinquency rate decreased 28 basis points from the previous quarter, and 114 basis points from one year ago, according to the Mortgage Bankers Association’s National Delinquency Survey.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. 

The percentage of loans in the foreclosure process at the end of the first quarter was 2.65%, down 21 basis points from the fourth quarter and 90 basis points lower than one year ago.  This was the lowest foreclosure inventory rate seen since the first quarter of 2008.

The percentage of loans on which foreclosure actions were started during the first quarter fell to 0.45% from 0.54%, a decrease of nine basis points, and the lowest level since the second quarter of 2006.

“We are seeing sustained and significant improvement in overall mortgage performance,” said Mike Fratantoni, MBA’s chief economist.  “A more stable and stronger job market, coupled with strong credit standards on new loans, has kept delinquency rates on recent vintages low, while the portfolio of loans made pre-crisis is steadily being resolved. Increasing home prices, caused by tight inventories of homes for sale, have helped build an equity cushion for many new borrowers and have helped some homeowners who had been underwater regain positive equity in their properties. The increase in values also helps to facilitate sales of distressed properties, which may further expedite the pace of resolution of pre-crisis loans.”

The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 5.04%, a decrease of 37 basis points from last quarter, and a decrease of 135 basis points from the fourth quarter of last year. Similar to the previous quarter, 75% of seriously delinquent loans were originated in 2007 and earlier, with another 20% originated between 2008 and 2010. Loans originated in 2011 and later only accounted for 5% of all seriously delinquent loans.  

“Mortgage delinquencies typically decline in the first quarter. However, the declines this quarter were on both a seasonally adjusted and year-over-year basis. The delinquency rate decreased for the fourth straight quarter, foreclosure starts have declined for five of the last six quarters, and the percentage of loans in foreclosure has decreased for eight straight quarters,” Fratantoni said.

“The rate of new foreclosures started, which captures the flow of loans that enter the foreclosure process, is now at 0.45%, which matches the long run average. The 30-day delinquency rate, an early indicator of potential mortgage performance problems, is below the historical average. This measure is usually highly correlated to the employment situation and it follows the recent health in labor markets that 30-day delinquencies are decreasing,” he said.

“In the past, we have cautioned that national improvements may not always translate into state or local market improvement,” Fratantoni said. “This quarter, however, only four states had an increase in the rate of new foreclosures started, while only one state had an increase in loans in foreclosure.”

Judicial states continue to account for the majority of loans in foreclosure, making up almost 70% of loans in foreclosure, while only representing about 40% of loans serviced. Of the 17 states that had a higher foreclosure inventory rate than the national average, 15 of those were judicial states. While the percentages of loans in foreclosure dropped in both judicial and non-judicial states, the average rate for judicial states was 4.6% compared to the average rate of 1.4% for non-judicial states.

New Jersey, a state with a judicial foreclosure system, was the only state in the nation to see an increase in loans in foreclosure over the previous quarter and now has the highest percentage of loans in foreclosure in the nation, with 8% of its loans in the foreclosure process. New Jersey also had the highest percentage of new foreclosures started in the first quarter of 2014, but also had a significant drop in its loans that were 90+ days delinquent, a sign that a large portion of loans previously held in the 90+ day delinquency category entered the foreclosure process during the quarter.

The aggregate foreclosure and delinquency measures for the top 25 metro areas in the US all declined in the first quarter. The Miami and Tampa metro areas continue to have the highest percentage of loans in foreclosure, but along with Chicago, Miami and Tampa also had the biggest improvements in loans in foreclosure over the year. In terms of new foreclosures started, only the Baltimore metro area had an increase over the first quarter of 2013. The largest decreases in foreclosure starts were in Miami, Atlanta, and Tampa. In terms of 90+ day delinquencies and loans in foreclosure, all 25 metro areas showed improvement over the past year. 
 

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