The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.85% of all loans outstanding at the end of the third quarter of 2014.
The delinquency rate decreased for the sixth consecutive quarter and reached the lowest level since the fourth quarter of 2007.
The delinquency rate decreased 19 basis points from the previous quarter, and 56 basis points from one year ago, according to the Mortgage Bankers Association’s National Delinquency Survey.
“Delinquency rates and the percentage of loans in foreclosure fell to their lowest levels since 2007,” said Mike Fratantoni, MBA’s chief economist. “We are now back to pre-crisis levels for most measures. Foreclosure starts were unchanged on a seasonally adjusted basis, but increased slightly in the raw data. Given that this measure reached the lowest level in eight years last quarter, and given the continued decline in delinquency and foreclosure inventory rates, we expect that the increase in the unadjusted starts rate is just regular seasonal fluctuation.”
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
Furthermore, the percentage of loans in the foreclosure process at the end of the third quarter was 2.39%, down 10 basis points from the second quarter and 69 basis points lower than one year ago.
“Strong job creation, falling unemployment and lower mortgage interest rates all helped the downward trend in the number of U.S. households suffering mortgage payment problems continue into the third quarter,” said Paul Diggle, property economist for Capital Economics. “The delinquency data support our view that the fundamentals of the housing recovery are still sound.”
The percentage of loans on which foreclosure actions were started during the third quarter was unchanged on a seasonally adjusted basis, but increased to 0.44% from 0.40% on an unadjusted basis, an increase of four basis points.
The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 4.65%, a decrease of 15 basis points from last quarter, and a decrease of 100 basis points from the third quarter of last year.
“Nationally, the seriously delinquent rate fell by 15 basis points last quarter and has dropped 100 basis points over the past year. The loans that are seriously delinquent, either 90+ days late or in the foreclosure process, are primarily loans that were made prior to the downturn: 74% of them were originated in 2007 or earlier,” Fratantoni said. “Loans made in recent years continue to perform extremely well due to the improving market and tight credit conditions; loans originated in 2012 and later accounted for only 4% of all seriously delinquent loans.”
Fratantoni said the largest increases in foreclosure starts rates were for subprime loans. Even though few to no subprime loans have been made post crisis, they still accounted for 33% of the new foreclosures started in the third quarter.
“The foreclosure starts rate for FHA loans increased by 12 basis points in the quarter. FHA loans were 17% of all loans serviced and accounted for 27% of new foreclosures,” he said. “Of all FHA loans, those originated in 2010 and prior accounted for 87% of serious delinquencies. More recent vintages accounted for the remaining 13%.”
Compared with the third quarter of 2013, the foreclosure inventory rate decreased 46 basis points for prime fixed loans, decreased 155 basis points for prime ARM loans, decreased 109 basis points for subprime fixed, decreased 183 basis points for subprime ARM loans, decreased 63 basis points for FHA loans, and decreased 33 basis points for VA loans.
“The gradual return of incidences of mortgage stress to historical norms sits comfortably with the wider economic backdrop. For example, mortgage interest rates fell to their lowest level in a year in the third quarter. Meanwhile, the economy is adding more than 200,000 net jobs per month and the unemployment rate has fallen close to the long run equilibrium rate,” Diggle said.