There were substantial improvements in delinquency rates during the first quarter of 2012 according to the National Delinquency Survey for the period released this morning by the Mortgage Bankers Association.  At a conference call for media accompanying the release, Jay Brinkmann, MBA's Chief Economist and Senior Vice President of Research and Education said that the combined percentage of loans in foreclosure or at least one payment past due was 11.33 percent, a 120 basis point (bp)  decrease from last quarter and 98  from one year ago.  This was the lowest that this measure has been since 2008.

This improvement was driven by a 62bp  decrease in the rate of loans that were 30 days or more delinquent.  Brinkmann said that the first quarter generally experiences a decline in 30-day delinquencies for seasonal reasons but this year the decrease was even larger and that rate, in fact, has returned to historical norms at 3.13 percent.

There was also a decrease in seriously delinquent loans, down 29bp, and this was not accompanied by an increase in foreclosure starts which, in fact, decreased 3bp on a non-seasonally adjusted basis.  Brinkmann said, looking at the two figures together leads to the assumption that a lot of very delinquent loans are being resolved in a manner other than foreclosure. 

The overall delinquency rate decreased to a seasonally adjusted rate of 7.40 percent, down from 7.58 percent in Q42012 and 8.32 percent in the first quarter of 2011.  Loans 90+ days delinquent were at a rate of 3.06 percent versus 3.11 and 3.62 percent.

Nationally the percentage of loans in foreclosure rose slightly but Mike Fratantoni MBA's Vice President of Research and Economics said the top-line figure covers up a couple of trends.  "First, the percentage of loans in foreclosure is up for prime and FHA loans.  The percentage of subprime loans in foreclosure continues to fall as the subprime loans age and the problems loans are resolved one way or the other.  However, the percentage of loans in foreclosure for both FHA loans and prime fixed-rate loans are climbing and are just below all -time records." 

"The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states," Franantoni said.  While the rate of foreclosure starts is essentially the same in judicial and non-judicial foreclosure states, the percent of loans in the foreclosure process has reached another all-time high in the judicial states, 6.9 percent.  In contrast that rate has fallen to 2.8 percent in non-judicial state, the lowest since early 2009."

The difference in the rates is even more disturbing in certain states.  In Florida the percent of loans in foreclosure is now 14.31 percent.   New Jersey and Illinois are trailing Florida substantially but  still have rates of 8.37 percent and 7.46 percent and, Brinkmann said, their rates are increasing.  Ten judicial states have rates above the national average of 4.39 percent.  On the other hand, among the 29 states using a non-judicial process, only Nevada has a higher rate of loans in foreclosure (6.47 percent) than the national average.

Five state now account for over 52.4 percent of all foreclosures in the country while accounting for only 32.1 percent of the loans services They are Florida, California, Illinois, New York, and New Jersey.

This judicial/non-judicial dichotomy is beginning to play out with FHA loans as well.  The foreclosure inventory for FHA loans is 3.83 percent, an increase of 29bp from the previous quarter.  The rate in judicial states, however is 5.59 percent compared to 2.69 percent.  Fratantoni indicated that this was somewhat the case for  VA loans as well.  "You have to ask yourself, " he said, "who is going to bear the costs of this differential foreclosure rate?  They are being passed on to all FHA borrowers in the form of higher across-the-board increases in insurance premiums, and ultimately to the taxpayers if the FHA insurance fund develops a shortage.

Another problem FHA is encountering is the result of the sharp increase in loan volume they experienced in the 2008-2009 period when other credit dried up.  Those loans are now entering the period in their life cycle most when delinquencies commonly occur.  Right now, while that vintage of loan accounts for 15 percent of all delinquent loans but represents 47 percent of FHA delinquencies.

In answer to a question during the conference call, Brinkmann said that he had seen little impact from the recent settlement agreement with servicers from five major banks.  He said the foreclosure inventory might have built a bit in anticipation of it, but "we know it didn't affect the 90 day bucket."  Any impact now that the agreement has been signed might not be noticed as it would have to differentiate itself from everything else that is going on in the system and it would also be felt largely on a state by state basis rather than nationally.

Brinkmann summed up the NDS report saying,  "Overall it has good news about where  we are going but the bottom line is we are still dependent on the economy."  As the job situation has improved so have delinquency figures and as long as this continues and there are no serious problems, such as a melt-down in Europe, we should see more of the same.