Delinquency Survey Shows Positive Developments

The US housing market may be entering a “third stage” of foreclosures according to the MBA’s Chief Economist Jay Brinkman.

The initial fallout from subprime and option ARM
mortgages constituted the first stage.  The second stage was seen when systemic challenges posed to the financial system by evolving recession manifested themselves in the housing market (credit availability down, prices down, demand down, all at a time of unprecedented inventory of homes).  Now, in the third stage, we are seeing the first signs of potential recovery.

The press conference accompanied the
release of the MBA’s First Quarter National Delinquency Survey released by MBA which
showed that, in the first quarter the seasonally adjusted foreclosure rate was
8.32 percent, an increase of seven basis points from the previous quarter but
down 174 basis points from the same period in 2010.  The non-seasonally adjusted rate was 7.79
percent, down 117 basis points from Q4. The increase in the seasonally adjusted
rate was due to a nine basis point bump in the 30-day delinquent category, now
at 3.35 percent.  The delinquency rate includes
loans that are at least one payment past due but does not include loans in

Brinkmann said that national foreclosure rates are
misleading because they are dominated by areas that are large and have outsized
problems such as Florida
.  The numbers of
homes in foreclosure in Florida are larger than the combined total of home
loans outstanding in 22 U.S. states and the top five states in terms of
foreclosures account for more than half of the nation’s total.  If those states are removed from the equation
he said, there are clear signs of a market on the mend
.  In Q1 38 states had foreclosure rates below
the national average.

Short-term delinquencies remain at pre-recession levels. Loans
90 days or more delinquent have now dropped for five straight quarters and are
at their lowest level since the beginning of 2009, 3.62 percent. 
Foreclosure starts are at 1.08 percent, the lowest level since the end of 2008
following a 19 basis point drop, the second largest ever.  The percentage
of loans somewhere in foreclosure is down from last quarter’s record high of
4.64 percent to 4.52 percent, one of the largest drops MBA has ever seen
although, Brinkmann said, the reasons for the drop differ from market to
market.  The serious delinquency
rate, the percentage of loans that are 90 days or more past due or in the
process of foreclosure, was 8.10 percent, a decrease of 50 basis points from
last quarter, and a decrease of 144 basis points from the first quarter of last

The combined percentage of loans in
foreclosure or at least one payment past due was 12.31 percent on a
non-seasonally adjusted basis, a 129 basis point decline from 13.60 percent
last quarter.

By loan type the seasonally adjusted rate increased from
5.48 percent to 5.50 percent from the fourth quarter for prime loans, from
23.09 percent to 24.01 percent for subprime loans, 6.67 percent to 6.93 percent
for VA loans.  FHA rates declined 24
percent to 12.03 percent.  On a
seasonally adjusted basis the rate expressed in basis points declined 182 for
prime, 320 for subprime, 112 for FHA, and 103 for VA loans on a year-over-year

For the first time the Delinquency Report breaks down loans
by type and year of origination and compares the incidence of delinquency for
each type against its presence in the portfolio. Loans of all types originated
prior to 2005 make up nearly one third of the existing portfolio but constitute
only 21 percent of delinquent loans
.  In
each subsequent year until 2009 the incidence of delinquencies represents a
higher share of the portfolio than do originations from that period. Eleven
percent of the loans originated in 2005 but 17 percent of delinquencies are
from that loan vintage.  In 2006 is was
11 percent v 26 percent; in 2007 10 percent against 22 percent, while in 2008
originations shrunk to 8 percent but 9 percent of the delinquencies are from
that group.   

“Of particular importance is that the drop in the
percentage of loans 90 days or more past due was driven by improving numbers
for loans originated between 2005 and 2007.
These are the loans that drove the
mortgage market collapse and now represent about 31 percent of loans
outstanding but 65 percent of the loans seriously delinquent. Given that loans
originated during this period are now past the point where loans normally
default, and that loans originated since then generally have better credit
quality, mortgage performance should continue to improve,” Brinkmann said.

The rate of foreclosure activity in judicial states is
continuing to rise and is now near 7 percent while the rate is dropping in
non-judicial states and is now close to 3 percent.  This information is confounded by the actual
states that fall into the two categories. 
Only three non-judicial states rank above the national average and
Florida with over a 14 percent rate is a judicial state.  However, Brinkmann noted that the states with
the biggest increases in the number of loans in foreclosure were Florida, New
Jersey, and Illinois, all states with judicial processes while the six states
with the largest decreases were California, Arizona, and Michigan, non-judicial
jurisdictions.  However, all six States
recorded declines in 90+ day delinquencies and in foreclosure starts. It is the
laws in judicial states that lengthen the timeline and increase the number of
loans that sit in foreclosure, Brinkmann said.

On a
seasonally adjusted basis, the overall delinquency rate increased for all but
FHA loans, with the biggest increases coming in the subprime categories. The
seasonally adjusted delinquency rate stood at 4.59 percent for prime fixed
loans, 11.25 percent for prime ARM loans, 22.04 percent for subprime fixed
loans, 26.31 percent for subprime ARM loans, 12.03 percent for FHA loans, and
6.93 percent for VA loans.

percentage of loans in foreclosure, also known as the foreclosure inventory
rate, decreased 12 basis points overall to 4.52. The foreclosure inventory rate
for prime fixed loans, which make up the largest portion of the survey
(accounting for 63 percent of all loans outstanding), decreased eight basis
points to 2.59 percent. The rate for prime ARM loans decreased 69 basis points
from last quarter to 9.53 percent. Subprime fixed loans saw an increase of 67
basis points to 10.53 percent, which is a new record high in the survey. The
rate for subprime ARM loans increased 26 basis points to 22.26 percent, while the
rate for FHA loans increased five basis points to 3.35 percent and the rate for
VA loans increased four basis points to 2.39 percent.

foreclosure starts rate decreased 16 basis points for prime fixed loans to 0.68
percent, 42 basis points for prime ARM loans to 2.38 percent, 19 basis points
for subprime fixed to 2.56 percent and 57 basis points for subprime ARMs to
3.67 percent. The foreclosure starts rate also decreased nine basis points for
FHA loans to 0.93 percent and 15 basis points for VA loans to 1.02 percent.

answer to a reporter’s question about th possibility banks were holding REO
off of the market, Brinkmann said there might be isolated instances where a
bank has determined a property would not sell at any time, but certainly no
concerted effort in that respect.  There
is, he said, instability in cartels that do not allow that type of conspiracy
to have any success.

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