Thursday, November 18, 2010

MBA National Delinquency Survey: Delinquency rate declines in Q3

by Bill McBride on 11/18/2010 11:29:00 AM

The MBA reports that 13.52 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q3 2010 (seasonally adjusted). This is down from 14.42 percent in Q2 2010.

Note: the MBA's National Delinquency Survey (NDS) covered "about 44 million first-lien mortgages on one- to four-unit residential properties" and the "NDS is estimated to cover approximately 88 percent of the outstanding first lien mortgages in the market." This gives about 50 million total first lien mortgages or about 6.75 million delinquent or in foreclosure.

From the MBA: Delinquencies and Loans in Foreclosure Decrease, but Foreclosure Starts Rise in Latest MBA National Delinquency Survey

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 9.13 percent of all loans outstanding as of the end of the third quarter of 2010, a decrease of 72 basis points from the second quarter of 2010, and a decrease of 51 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.
...
The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago.
Note: 9.13% (SA) and 4.39% equals 13.52%.

Most of the decline in the overall delinquency rate was in the seriously delinquent categories (90+ days or in foreclosure process). Part of the reason is lenders were being more aggressive in foreclosing in Q3 (before the foreclosure pause), and there was a surge in REO inventory (real estate owned). Some of the decline was probably related to modifications too.

The following graph shows the percent of loans delinquent by days past due.

MBA Delinquency by Period Click on graph for larger image in new window.

Loans 30 days delinquent decreased to 3.36%. This is slightly below the average levels of the last 2 years, but still high.

Delinquent loans in the 60 day bucket decreased to 1.44% - the lowest since Q2 2008.

With the foreclosure pause, the 90+ day and in foreclosure rates will probably increase in Q4. The 30 day and 60 day buckets are dependent on jobs and house prices.

More from the press release:
“Mortgage delinquency rates declined over the quarter and over the past year, due primarily to a large decline in the 90+ day delinquency rate. The number of loans in foreclosure also dropped, bringing the serious delinquency rate to its lowest level since the second quarter of 2009. However, the foreclosure starts rate increased for all loan types and the foreclosure starts rate for prime fixed loans set a new record high in the survey, as more loans entered the foreclosure process,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.

“Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.”
...
“The foreclosure paperwork issues announced by several large servicers in late September and early October are unlikely to have had a large impact on the third quarter numbers, but may well increase the foreclosure inventory numbers in the fourth quarter of 2010 and in early 2011. ... The servicers that halted foreclosure sales temporarily may show higher foreclosure inventory numbers in the fourth quarter of 2010 and in early next year than would otherwise have been the case. ... However, these foreclosed homes are likely to come on the market in the medium term, so it is only a delay rather than a change in the underlying economics.”
The MBA also noted that a majority of delinquent loans (and loans in foreclosure) are prime loans. We are all subprime now!