MBA: Mortgage Market 'On the Mend’

By the end of the first quarter of 2011 the seasonally adjusted delinquency rate of all one-to-four unit residential property loans increased to 8.32%, up 7 basis points from the fourth quarter of 2010. Yet overall findings from the Mortgage Bankers Association’s National Delinquency Survey show improvements are taking hold.

The MBA reported that the nonseasonally adjusted delinquency rate decreased 117 bps to 7.79% this quarter from 8.96% last quarter. Also, the percentage of loans on which foreclosure actions were started during the first quarter dropped 19 bps on a quarterly basis 15 bps year-over-year to 1.08%.

Decreases were reported on the percentage of loans in the foreclosure process, which at the end of the first quarter was 4.52%, down 12 bps from the fourth quarter of 2010 and 11 bps year-over-year. The combined percentage of loans in foreclosure or at least one payment past due was 12.31% on a nonseasonally adjusted basis, down 129 bps from 13.6% last quarter.

According to MBA’s chief economist Jay Brinkmann, findings show a “mortgage market on the mend,” even though reasons differ from market to market.

And the main reason is not just that short-term delinquencies remain at pre-recession levels, the percentage of loans somewhere in foreclosure decreased on a quarterly basis marking “one of the largest drops” seen so far, and foreclosure starts saw the second largest drop in the recent past to the lowest level since the end of 2008.

Brinkmann finds reason for optimism in the fact that the percentage of loans 90 days or more past due has decreased due to performance improvements among loans originated between 2005 and 2007, which were at the root of “the mortgage market collapse” and represent 65% of all seriously delinquent loans. These loans also represent 32% or almost one-third of all loans outstanding.

Loans 90 days or more delinquent or in the process of foreclosure have now dropped for five straight quarters to their lowest level since the beginning of 2009. The serious delinquency rate was 8.1%, down 50 bps from last quarter, and 144 bps from the first quarter of last year.

The foreclosure rate in Texas fell to 1.89% during the first quarter of 2011, much lower than the national average of 4.52% and the lowest of the country’s largest 30 states.
Brinkmann argues that since loans originated after 2007 “generally have better credit quality,” the overall mortgage market performance should continue to improve.

Local performance in problematic states like Florida, Nevada, Arizona, California, Michigan or New Jersey indicate, however, that any national level recovery must be taken with a grain of salt when it comes to local market conditions, which ultimately “determine values and peoples’ perception of values of conditions,” he said.

Differences in state foreclosure laws also increase local market recovery divergences.

The delinquency rate in Florida was 8.77%, down 141 bps from the fourth quarter of 2010. Nonetheless Florida hosts 24% of all mortgages in foreclosure. Almost one-fourth, or 23%, of all loans in Florida are at least one payment past due or in some phase of foreclosure.

Florida—along with New Jersey and Illinois—is one of the states with the biggest increases in the number of loans in foreclosure because they have judicial foreclosure processes that lengthen the foreclosure timeline. The impact, Brinkmann said, is a high potential overhang of housing inventory in those states, but “not a national issue.”

Up to 38 states have foreclosure rates that are below the national average.

The states with the largest decreases in loans in foreclosure were California, Arizona and Michigan. The delinquency rate in California was 8.31%, down 86 bps from the fourth quarter of 2010.

Quarter-to-quarter foreclosure starts in the state also fell 19 bps to 1.23% in the first quarter, while the percentage of loans in the foreclosure process dropped 51 bps to 3.97%.

Texas is another state that is in a recovery mode. Scott Norman, president of the Texas Mortgage Bankers Association, said findings show signs of a sustainable housing improvement in the state. Currently Texas has the sixth lowest foreclosure rate in the country.

The Texas delinquency rate for all loans dropped to 7.91% in the first quarter, the lowest level in over two years. Also, at 2.8% the 90 days or more delinquent loan rate, which is “a strong indicator for future foreclosures,” fell below 3% for the first time in nearly two years.

"The continual and sizable reduction in the foreclosure rate is a material sign that the worst is behind us in Texas," he said.