While foreclosure starts were up, the Mortgage Bankers Association's (MBA) National Delinquency Survey for the third quarter reports significant improvement in most other foreclosure metrics. For example, the delinquency rate for one-to-four family residential loans dropped 72 basis points from the second quarter to a seasonally adjusted rate of 9.13 percent. This is also 51 basis points lower than in the third quarter of 2009. The delinquency rate measures loans that have missed one or more payments but does not include mortgages that are in foreclosure. When those are added, the overall rate is 13.78 percent, down from 13.97 in the second quarter.
Loans that were 90 or more days delinquent or in foreclosure represented 8.70 percent of all loans; this is a decrease of 41 basis points from the second quarter and 15 basis points from figures in the third quarter of 2009. This is the lowest rate of serious delinquency since the second quarter of 2009.
The number of loans in foreclosure declined to 4.39 percent from 4.57 percent last quarter and 4.47 percent a year earlier, however new foreclosure actions were started during the third quarter on 1.34 percent of active loans, an increase of 23 basis points since the previous quarter but eight basis points lower than in the third quarter of 2009. Foreclosure starts increased for all loan types and prime FRMs set a new record high in the survey.
Michael Fratantoni, MBA's Vice President of Research and Economics said, "We have frequently observed that there can be a tradeoff between 90+ day delinquencies and foreclosure starts. That happened this quarter as the foreclosure start rate increased, the mirror image of the decline in the 90+ delinquency rate, although for both prime and subprime loans, both foreclosure starts and 90+ delinquency rates increased from last quarter. Loans that are 90 days or more late remain the largest proportion of delinquencies with the 90+ rate still almost four times greater than the average of about 1.1 percent over the past 20 years."
"The foreclosure paperwork issues announced by several large servicers in late September and early October are unlikely to have had a large impact on the third quarter numbers, but may well increase the foreclosure inventory numbers in the fourth quarter of 2010 and in early 2011" Fratantoni said. "Any drop in foreclosure sales over the next few quarters may actually reduce the inventory of homes on the market, which is still quite swollen, with almost 4 million properties currently listed. However, these foreclosed homes are likely to come on the market in the medium term, so it is only a delay rather than a change in the underlying economics."
The delinquency rates decreased from the previous quarter for all loan types except subprime ARM loans. Seasonally adjusted rates (in percentages) for the various loan types were: prime FMR, 5.17; prime ARM, 13.31; subprime FRM, 23.84; subprime ARM, 29.80; FHA, 12.62; VA, 7.44. The report cautions, however, that given the difficulty of interpreting the true seasonal effects of quarter to quarter changes, it is important to also consider year over year changes. Since the third quarter of 2009, the non-seasonally adjusted delinquency rate decreased 40 basis points for prime FRM, 64 basis points for subprime FRM; 182 basis points for FHA loans, and 65 basis points for VA loans. The rate was up 91 basis points for prime ARM loans and 131 basis points for subprime ARM loans.
Foreclosure starts increases year over year by 22 basis points for prime FRMs, 11 basis points for subprime FRM but decreased 109 basis points for prime ARMs, 83 basis points for subprime ARM loans, seven basis points for FHA loans and one basis point for VA loans.
Of 33 states noting increases in the rate of foreclosure starts year over year, Washington, Indiana, and South Carolina had the largest. The largest decreases were in Nevada, California, and Florida but Florida and Nevada still have the highest percentages of foreclosure starts and loans in foreclosure across most loan types.
