The Mortgage Bankers Association today released the First Quarter 2010 National Delinquency Survey (NDS) results.

Seasonally adjusted mortgage delinquency rates increased again during the first quarter of 2010, but a decrease in non-seasonally adjusted data is giving the Mortgage Bankers Association (MBA) reason for a little cautious optimism.

The survey's seasonally adjusted figures showed a 59 basis point increase in total delinquencies from the fourth quarter of 2009 to a rate of 10.06 percent of all loans outstanding.  This represents an increase of 94 basis points from one year ago.  However, non-seasonally adjusted delinquencies decreased 106 basis points from 10.44 percent at the end of 2009 to 9.38 percent at the end of March. 

The delinquency rate includes loans that are at least one payment behind but does not include loans in the process of foreclosure.  Loans in foreclosure represented 4.63 percent of all loans, an increase of five basis points from the fourth quarter of 2009 and 78 basis points higher than one year earlier.  This is a record high foreclosure rate.  In addition, foreclosure actions were started on 1.23 percent of loans compared to 1.20 percent last quarter, however, this metric was down from 1.37 percent in the first quarter of 2009.

Taken together, loans in foreclosure and loans at least one payment late make up 14.01 percent of all loans compared to 15.02 percent last quarter.

Jay Brinkmann, Chief Economist for MBA says, "The issue this quarter is that the seasonally adjusted delinquency rates went up while the unadjusted rates went down. Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter and we saw that first quarter drop in the data.  The question is whether the drop represents anything more than a normal seasonal decline or a more fundamental improvement.  Most importantly, the normal seasonal drop is coming right at the point where we believe delinquencies could potentially be declining and the problem for the statistical models is determining which is which."   

"The seasonal models say it is not a fundamental improvement and that the seasonal drop should have been larger to represent a true improvement, hence the increase in the seasonally adjusted numbers.  Yet there is reason to believe the seasonally adjusted numbers could be too high.  Simply put, fundamental market factors may be having a greater influence on the delinquency rates than is normally the case, but mathematical models have difficulty discerning the difference over a short period of time. 

"Since discerning what represents a fundamental improvement versus a simply seasonal improvement is probably more of an art than a mathematical science at this point, the seasonally adjusted numbers should be viewed with a degree of caution."

Loans that were 30+ days delinquent increased from 3.31 percent to 3.45 percent; those 60+ days late increased from 1.54 percent to 1.59 percent, and seriously delinquent loans, those 90+ days in arrears, increased from 4.62 percent to 5.02 percent.

"Overall, we see a continuation of the pattern of declines in short-term delinquency rates, at least on a non-seasonally adjusted basis," Brinkmann said.  "The continued historically high share of delinquencies that are 90 days or more past due, and a leveling off in the pace of foreclosures.

"The economy has begun to generate jobs and layoffs have declined, although new claims for unemployment insurance remained higher in the first quarter than we expected.  The percent of loans behind one payment had been declining as first-time claims for unemployment began falling in March 2009.  Those new claims stopped falling during the first quarter of this year, which likely halted the decline in the underlying 30-day delinquency rate.  If mortgage delinquencies are not yet clearly improving, it also appears they are not getting worse. However, a bad situation that is not getting worse is still bad.

Prime loans overall had a delinquency rate of 7.32 percent (seasonally adjusted) compared to 6.73 percent in the fourth quarter, however Prime ARMs had a rate nearly twice that of Prime fixed-rate loans; 13.52 percent compared to 6.17 percent.  These rates were up 142 basis points and 57 basis points respectively from their fourth quarter levels. 27.21 percent of all subprime loans are in some stage of delinquency, up from 25.26 percent. Subprime FRM loans increased from 23.83 percent to 25.69 percent and subprime ARMs jumped from 26.69 percent to 29.09 percent. Delinquencies of FHA loans decreased slightly, from 13.57 percent in the fourth quarter to 13.15 percent while VA loan delinquencies increased from 7.41 percent to 7.96 percent.  All types of loans showed declines on a non-seasonally adjusted basis.   

Compared on a year-over-year basis, the non-seasonally adjusted delinquency rate increased 151 basis points for prime fixed loans, 172 basis points for prime ARM loans, 343 basis points for subprime fixed loans, and 244 basis points for subprime ARM loans from the first quarter of 2009. The delinquency rate was 48 basis points lower for FHA loans and 12 basis points for VA loans relative to the same quarter a year ago.

The states with the highest overall delinquency rates were Nevada (14.03 percent), Mississippi (12.70 percent), and Georgia (12.10 percent).  The highest inventory of foreclosures are in Florida (13.97 percent,) Nevada (10.40 percent,) and New Jersey (6.17 percent); and the highest rates of foreclosure were in Nevada (3.23 percent,) Florida (2.41 percent,) and Arizona (2.24 percent.)  Brinkmann noted that Florida, Arizona, Nevada, and California have dominated the national picture for several years and that, while California is improving, Florida is getting worse.  Washington, Maryland, Oregon, and Georgia showed the greatest overall increases in foreclosure starts compared to Q4 2009.

The foreclosure starts rate increased for all loan types with the exception of subprime loans. The foreclosure starts rate increased six basis points for prime fixed loans to 0.69 percent, 17 basis points for prime ARM loans to 2.29 percent, 18 basis points for FHA loans to 1.46 percent, and eight basis points for VA loans to 0.89 percent. For subprime fixed loans, the rate decreased nine basis points to 2.64 percent and for subprime ARM loans the rate decreased 39 basis points to 4.32 percent.

The delinquency survey covers about 85 percent of the first-lien mortgages outstanding in the U.S.  During the first quarter the survey covered 44.4 million first mortgages on one-to-four family properties, a number that has decreased about 620,000 loans since the first quarter of 2009 and 63,000 loans since the fourth quarter.