National Delinquency Survey: Must Stop the Bleeding

Jay Brinkmann, the Mortgage Bankers Association’s
(MBA’s) Chief Economist, told reporters on Monday that MBA’s National
Delinquency Survey
(NDS) for the second quarter of 2011 combines good news with
not so good news. 

“While overall
mortgage delinquencies increased only slightly between the first and second
quarters of this year, it is clear that the downward trend we saw through most
of 2010 has stopped.  Mortgage delinquencies are no longer improving and
are now showing some signs of worsening,” he said.  “The good news is the continued decline in
long-term delinquencies, those mortgages that are three payments or more past
due. The bad news is that drop is offset by an increase in newly delinquent loans
one payment past due.”

The delinquency rate for mortgage loans
on one-to-four-unit residential properties increased to a seasonally adjusted
(SA) rate of 8.44 percent of all loans outstanding as of the end of the second
quarter of 2011, an increase of 12 basis points from the first quarter of 2011,
and a decrease of 141 basis points from one year ago, according to the NDS
report. The non-seasonally adjusted (NSA) delinquency rate increased 32 basis
points to 8.11 percent this quarter from 7.79 percent last quarter.

The 30+ day delinquency figures are not
nearly as good.  Loans in that bucket
declined 5 basis points (bp) (SA) and 2 bp (NSA) to 3.46 and 2.22  percent respectively while on a quarterly
basis the 30+ day rose 11 bp and 32 bp.  The 60+ days delinquency bucket was down 15 bp
from one year ago, both SA and NAS, but up from last quarter 2 bp and 9 bp.

Brinkmann compared the current housing
industry to an accident victim saying that one would love to rush to patch up
the wounds and start rehabilitating the patient, “but first we must stop the
bleeding which, in this case is delinquent loans.”
Brinkmann said the current
figures indicate that it may be a while before we see the patient healing and
moving toward rehabilitation.

The increase in early delinquencies, Brinkmann
said, is not surprising.  “Mortgage loans
that are one payment, or 30 days, past due are very much driven by changes in
the labor market, and the increase in these delinquencies clearly reflects the
deterioration we saw in the labor market during the second quarter. Weekly
first-time claims for unemployment insurance started the quarter at 385,000 but
finished the quarter at 432,000. The unemployment rate started the quarter at 8.8
percent but climbed to 9.2 percent by the end of the quarter.”

The numbers for more advanced
delinquencies are more encouraging.  The
percentage of loans on which foreclosure actions were started during the second
quarter was 0.96 percent, down 12 basis points from last quarter and down 15
basis points from one year ago. The delinquency rate includes loans that are at
least one payment past due but does not include loans in the process of
foreclosure; those equaled 4.43 percent of loans, down 9 basis points from the
first quarter and 14 basis points lower than one year ago. The serious
delinquency rate, the percentage of loans that are 90 days or more past due or
in the process of foreclosure, was 7.85 percent, a decrease of 25 basis points
from last quarter, and a decrease of 126 basis points from the second quarter
of last year.

The combined percentage of loans in
foreclosure or at least one payment past due was 12.54 percent on a
non-seasonally adjusted basis, a 23 basis point increase from last quarter, but
143 basis points lower than a year ago.

Foreclosure start rates fell to their lowest
level since the fourth quarter of 2007 and foreclosure inventory rates were at
their lowest level since the third quarter of 2010.  The economist disputed what he said were
claims of others that the drop in foreclosure starts is a temporary effect of
paperwork issues and presages a big surge in foreclosures at some point.  The MBA report, he said does not support
this.  Paperwork may be preventing some
evictions and affecting REO, but the only place there appears to be an overhang
of inventory is in judicial states.  Nine
states currently have a higher rate of foreclosure than the national average of
4.43 percent and all but one of these (long-time trouble spot Nevada) is a
judicial foreclosure state.  Florida at
14.39 percent has a rate more than three times the national average and nearly twice
that of the second highest state, Nevada.

Foreclosures continue to be concentrated in just
a few states with five accounting for 52 percent of the current foreclosure
inventory.  Again this appears to be
driven by whether the state has a judicial or non-judicial foreclosure system. 
“One of the reasons the percentage of loans in foreclosure in California (3.6
percent) is considerably lower than states like Florida (14.4 percent), New
Jersey (8.0 percent), Illinois (7.0 percent) and New York (5.5 percent) is that
California does not have a judicial foreclosure system. Therefore, as we work
toward resolving the foreclosure overhang in the housing market, we should be
careful to distinguish between the economic impediments to resolution and the
legal impediments to resolution,” Brinkmann said.  He pointed to Maryland where a new mandatory
mediation law may be responsible for an increase in the number of loans 90+
days delinquent.

On a seasonally adjusted basis, the overall
delinquency rate increased for all loan types. The seasonally adjusted
delinquency rate increased 15 basis points to 4.74 percent for prime fixed
loans and increased 51 basis points to 11.76 percent for prime ARM loans. For
subprime loans, the delinquency rate increased 58 basis points to 22.62 percent
for subprime fixed loans and increased 87 basis points to 27.18 percent for
subprime ARM loans. FHA and VA loans also saw increases, with the delinquency
rate increasing 59 basis points to 12.62 percent for FHA loans and increasing
12 basis points to 7.05 percent for VA loans. Statistics for loans in
foreclosure and foreclosure starts also decreased for each loan type with the
exception of subprime fixed-rate loans which saw an increase in the foreclosure
inventory rate of 48 basis points or 11.01 percent.

In response to a question about steps the
government might take to “stop the bleeding” Brinkmann said that housing is no
longer driving the economy.  “Housing is
a reflection and whatever the government does for the overall economy will be
the best thing they can do for housing.”