Foreclosures Down Sharply

Investors to see less inventory

The delinquency rate for mortgage loans fell last year, and along with it the foreclosure rate.

According to the latest National Delinquency Survey from the Mortgage Bankers Association, delinquencies for one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.09 percent of all loans outstanding at the end of the fourth quarter of 2012, the lowest level since 2008, a decrease of 31 basis points from the previous quarter, and down 49 basis points from one year ago.

While delinquency rates typically increase between the third and fourth quarters of the year, even the non-seasonally adjusted delinquency rate dropped 13 basis points to 7.51 percent this quarter from 7.64 percent last quarter.

The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.70 percent, the lowest level since the second quarter of 2007, down 20 basis points from last quarter and down 29 basis points from one year ago. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.74 percent, the lowest level since the fourth quarter of 2008, down 33 basis points from the third quarter and 64 basis points lower than one year ago.

We are seeing large improvements in mortgage performance nationally and in almost every state. The 30-day delinquency rate decreased 21 basis points to its lowest level since mid-2007. With fewer new delinquencies, the foreclosure start rate and foreclosure inventory rates continue to fall and are at their lowest levels since 2007 and 2008 respectively,” said Jay Brinkmann, MBA™s Chief Economist and Senior Vice President of Research.

The foreclosure starts rate decreased by the largest amount ever in the MBA survey and now stands at half of its peak in 2009. Similarly, the 33 basis point drop in the foreclosure inventory rate is also the largest in the history of the survey.

One cautionary note is that the 90+ delinquency rate increased by 8 basis points, reversing a fairly steady pattern of decline and the largest increase in this rate in three years. “While we normally see an increase in this rate in individual states when they change their foreclosure laws, 38 states had increases in the percentage of loans three payments or more past due, indicating that we could see a modest increase in foreclosure starts in subsequent quarters,” Brinkmann adds.

The two biggest factors impacting the number of loans in the foreclosure process still are the magnitude of the problem in Florida and the judicial foreclosure systems in some states. 12 percent of the mortgages in Florida are in the process of foreclosure, down from a peak of 14.5 percent last year but still an extraordinarily high rate that is impacting the national rate. In addition, while the percentages of loans in foreclosure dropped in almost all states, the average rate for judicial states was 6.2 percent, triple the average rate of 2.1 percent for nonjudicial states. In those cases, the ultimate reduction in the number of loans in foreclosure will have less to do with the recovery of the economy and the housing market than with the return to reasonable foreclosure timelines.

Superstorm Sandy had an impact on the delinquency and foreclosure rates in the states that were affected, although the impacts are much more modest than after Hurricane Katrina in 2005. New York, New Jersey and Connecticut saw increases in total past due rates, while most other states in the nation saw a drop overall. While forbearance is in place for many of the borrowers affected by the storm, servicers were asked to report those loans as delinquent if the payment was not made based on the original terms of the mortgage regardless of the forbearance. “We expect to see improvements in these states as we move into 2013, Brinkmann said.

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