A fourth-quarter drop in the nation’s mortgage delinquency rate spells good news for the economy even as the foreclosure inventory level hit a record high on procedural issues, the Mortgage Bankers Association said Thursday. The delinquency rate for U.S. mortgages fell 91 basis points in the fourth quarter with 8.22% of mortgages classified as delinquent, or at least one payment past due but not in foreclosure, the Mortgage Bankers Association reported. That’s a drop from a delinquency rate of 9.13% in third quarter and a 25-basis point decline from the 9.47% delinquency rate recorded in year earlier quarter. By the end of the quarter, the non-seasonally adjusted foreclosure start rate hovered at 1.27%, down seven basis points from the third quarter. While this slowing in foreclosure starts was highlighted by MBA analysts as a possible thawing in the economy, the number of mortgages moving through the actual foreclosure process went up on a non-seasonally adjusted basis, hitting an all-time high, suggesting that procedural issues surrounding foreclosures have created a bottleneck, making it harder for loans to make it through the entire process. The MBA said the percentage of loans in foreclosure during the fourth quarter rose to 4.63% from 4.39% in the prior quarter. “While the foreclosure starts rate fell during the fourth quarter, the percentage of loans in foreclosure rose to equal the all-time high,” said Mike Fratantoni, the MBA’s vice president for single family research. “The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale. As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October. These issues caused a temporary halt in foreclosure sales, particularly in states with judicial foreclosure regimes, such as New Jersey, Florida, and Illinois.” (see chart below) The MBA did have some good news: The fourth-quarter seriously delinquent rate — a measure of the percentage of loans 90 days or more delinquent on a non-seasonally adjusted basis or in foreclosure — fell from the prior quarter and year earlier. For the recent quarter, this measurement decreased to 8.57% of all loans classified as seriously delinquent from 8.7% for the third quarter. On a year-over-year basis, the seriously delinquent rate fell 110 basis points from 9.67% in the fourth quarter of 2009. The MBA said Thursday it will keep its eye on Federal Housing Administration loans since mortgages insured by the FHA were the only loan type to experience an increase in the seriously delinquent rate. Holders of subprime and prime loans saw the seriously delinquent rate drop at least 18 basis points between the third quarter and fourth quarter on a seasonally adjusted basis, while the seriously delinquent rate on FHA-insured loans increased 21 basis points to 8.46% in final quarter of 2010. The seriously delinquent rate on VA loans fell one basis point in the fourth quarter. Write to Kerri Panchuk.