Delinquency Rate Improvements Reaffirm Stabilization

Declines in the mortgage delinquency rates on all one-to-four unit residential loans outstanding during the first quarter add another layer of affirmation to previous data that suggest some level of market stabilization.

At 7.4%, according to the 1Q12 Mortgage Bankers Association National Delinquency Survey, delinquencies dropped only 18 basis points compared to the pervious quarter on a seasonably adjusted basis, but the rate decrease persists at 92 bps year-over-year and 121 bps on a nonseasonably adjusted basis.

The nonadjusted rate of foreclosure starts dropped to 0.96% from 0.99% in 4Q11 and 1.08% in the same quarter of 2011. (The adjusted rate was at 0.93% in 1Q12, 1.04% in 4Q11 and 1.03% in 1Q11.) Also, the rate of seriously delinquent loans dropped to 7.44% compared to 7.73% in the last quarter and 8.10% in 1Q11.

On a national basis, all the metrics, total past due, 30 days past due, 60 days past due, over 90 days past due, adjusted and nonadjusted to seasonal changes, were on a downward mode both year-over-year and quarter-over-quarter, except the foreclosure inventory.

It is an upgrade even though there still are some mixed reviews. This quarter the inventory increased to 4.39%, from 4.38% in 4Q11, but was 13 bps lower than the 4.52% reported in 1Q11.

This report has some good news, MBA’s chief economist Jay Brinkmann said during a press conference, given that the seasonally adjusted past due rate is at its lowest since 2008, while both the 30-day and the 60-day delinquency rates are at their lowest since 2007. Further improvements, however, will depend on the overall economy, especially the job market, he said.

New declines in the delinquency rate of mortgage loans on one-to-four unit residential properties also are marred by the persisting inventory backlog and foreclosure procedure delays in the so-called judicial states.

For example, improvements in the delinquency rate in hard-hit markets like California, which this quarter was at 3.29%, and Arizona at 3.57%, compared to Florida at 14.31%, show a much stronger divide in the recovery between judicial nonjudicial states, Brinkmann said.

At the same time the foreclosure starts rate “is essentially the same,” said MBA’s VP of research and economics, Michael Fratantoni. While the slow-moving judicial foreclosure systems in some of the largest states block timely resolution of nonperforming loans, it is not an indicator of the fundamental health of the housing market or the economy.

“A similar pattern” is emerging as the different state laws increase risk and cost to FHA. “Loans originated at the peak of the housing boom and, arguably at the low point in credit standards, continue to comprise the majority of the problem loans,” he said, with 60% of all loans three payments or more past due or in foreclosure were originated between 2005 and 2007.

In the fourth quarter of last year the delinquency rate fell to a three-year low with most loan types improving except for FHA loans. In addition, in this quarter the once-stellar VA loans are following suit.

Data show that while the delinquency rate of FHA loans fell to 12% from 12.36% in 4Q11 and 12.3% in 1Q11, there are no signs of improvement in the 90 days or more delinquent bucket.

The adjusted rate of seriously delinquent FHAs increased to 5.32% in 1Q12, up from 5.10% in 4Q11 and 4.79% in 1Q11. At 5.15%, the nonadjusted rate compares to 5.48% in 4Q11 and 4.69% in 1Q11.

At 6.57% the VA loan delinquency rate decreased 36 bps from last year but was 2 bps higher than the previous quarter. VAs over 90 days past due represented 2.35% of all loans in 1Q12 or 2.28% if not seasonably adjusted, but both were up 15 bps year-over-year.

FHA loans were the largest contributors to the foreclosure inventory, followed by VA loans and to a lesser extent, prime fixed-rate loans and prime adjustable-rate loans.

The foreclosure inventory of FHA loans increased to 3.83% during the quarter, from 3.54% in 4Q11 and 3.35% in 1Q11, up 29 bps and 48 bps, respectively. The foreclosure inventory of VA loans on the other hand, increased to 2.46%, up 9 bps from last quarter and 7 bps compared to 1Q11.

If delinquencies continue to decline the jury is still out on how improving late payments are affected by government modification programs and delays caused by the robo-signing settlement.

Brinkmann dismissed expectations about the AG settlement. It will not have an impact on delinquencies and the foreclosure inventory any time soon, he said. “If anything, it probably built up the foreclosure inventory to a certain extent” in all the states. But it could “speed up” the process for some of the loans exiting the foreclosure process. “Had it impacted the 90-day bucket, we would have seen that grow, but it fell by quite a bit so don’t know that there was an impact there.”

Its influence would depend on whether any impact will be significant enough to stand out and “be separable from the rest of the numbers,” he said, as well as on how that impact would differ by state.

“We’ll have to see whether or not the actual numbers impacted differently by the settlement will make that much of a difference in the overall average.”