There was a lot of good news in the Fourth Quarter National Delinquency Study released by the Mortgage Bankers Association (MBA) Thursday.  First, the overall, seasonally adjusted delinquency rate (which does not include loans in foreclosure) fell to 8.22 percent, a decrease of 91 basis points from a 9.13 percent rate in the third quarter and down 125 basis points from the same period in 2009.  Jay Brinkmann, MBAs chief economist said that the non-seasonally adjusted rate showing a decrease of 46 basis points to 8.93 percent might be even better news. There is usually a sharp spike in the rate in the fourth quarter, perhaps because homeowner's budgets are impacted by the first home heating bills of the season.  That the rate fell this time indicates that the downward movement may be real.

Delinquencies were down across all stages but one.  Loans in the 30+ day bucket had a delinquency rate of 3.25 percent, down from 3.36 percent in the third quarter and 3.31 percent a year earlier.  This rate, in fact, returns 30 day delinquencies to a pre-recession level.  Loans delinquent 60+ days decreased 1.44 percent in the third quarter to 1.34 percent.  The rate was 1.60 percent a year earlier.  Loans in the 90+ bucket decreased from 4.34 percent to 3.63 percent quarter-over-quarter.  One year earlier the 90+ rate was 4.62 percent.  Loans seriously delinquent or in foreclosure had a rate of 8.57 percent compared to 8.70 percent a quarter earlier and 9.67 percent in the fourth quarter of 2009.

Foreclosure starts were down from 1.34 percent in the third quarter to 1.27 percent, but the new figures were seven basis points higher than a year earlier.  The foreclosure inventory was up from 4.58 percent in Q4 2009 and 4.39 percent in Q3 2010 to 4.63 percent in the most recent survey.  Brinkmann said much of the increase is probably due to process issues with loans working through the system.

The improvement in delinquencies holds across loan types as well, with the rate for all prime loans and all subprime loans decreasing for the third consecutive quarter.  Prime loans now have a delinquency rate of 5.48 percent, down from 6.29 percent in Q3 and subprime are at 23.01, a decrease of 322 basis points.  There were slight increases in foreclosure starts for subprime and VA loans and Prime ARMs.   

One area that bears watching, Brinkmann said, was FHA loans.  While seasonally adjusted figures in all categories except foreclosure inventory, unadjusted figures showed an upward blip in early delinquencies.  Brinkmann said, since FHA has grown by one million loans in the last year, an increase in percentages was surprising.

Among the states, Mississippi had the highest overall delinquency rate at 13.30 percent followed by Nevada (12 percent), and Georgia (11.89 percent).  Florida had the highest foreclosure inventory (14.18 percent) with Nevada second at 10.06 percent and New Jersey third at 7.23 percent.  The highest foreclosure starts were in Nevada (2.95 percent,) Arizona (2.29 percent), and Florida (2.21 percent.)  Brinkmann said that one-quarter of homes in Florida are currently in a foreclosure inventory or the process of foreclosure.

This is the 41st year that MBA has conducted the delinquency survey and the 156th consecutive quarter.  Data was collected on 43.6 million mortgage loans, 389,000 fewer than in the third quarter.  The decrease, Brinkmann said, was due to a combination of foreclosures, a high level of refinances that had not yet reentered the system, and the advent of non-traditional servicers such as IBM which were not yet participating in the survey.

At a press conference following the release a reporter asked how many more positive quarters would be needed to return the data to normal levels.  Brinkmann said the situation is so localized it is impossible to say on a national basis.  The pattern so far, however, has correlated with employment data so he expects that delinquencies will continue to follow the job market.   Another factor that is positive, however, is that tightened underwriting requirements have been in effect for a while and the first of those new loans have passed the three-year mark before which most problems tend to occur, so that cohort of the data base appears to be aging well.

He was also questioned whether the improvement in delinquencies might be a factor of loan modifications which have a historically had a high redefault rate and thus the data might reflect only a pause in new delinquencies.  Brinkmann said that again the historical timing of the modifications means that many redefaults have either occurred or are currently reflected in the data.