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Editorial: More Default Woes

Say what you will about the economy, but the mortgage industry still has a ways to go before working through the current increase in loan delinquencies and defaults, which is especially pronounced on the subprime end of the credit spectrum.

The overall delinquency rate edged down during the first quarter of 2007. But at 4.84%, the share of home loans that were at least 30 days past due remained higher than a year earlier, according to the Mortgage Bankers Association.

More troublesome was the foreclosure trend. Foreclosures reached a record high as of March 31, according to the MBA's quarterly delinquency survey. The rate of loans entering the foreclosure process climbed four basis points to 0.58%, which was also 17 basis points higher than the foreclosure start rate a year earlier and a new record high. The MBA also reported that the foreclosure inventory stands at 1.28% of all loans outstanding, a record level.

Doug Duncan, the MBA's chief economist, said the rise in foreclosure activity was concentrated in specific regions and not a national phenomena. Foreclosure starts were pushed up because of big jumps in California, Florida, Nevada and Arizona. Those states have had high levels of investor home purchases and are now plagued by falling home prices. The foreclosure inventory took a hit from prolonged economic and employment weakness in Ohio, Michigan and Indiana. While the difficulties in those states may not reflect what is going on in much of the rest of the country, their impact is still a negative factor affecting most national loan servicers. The MBA said the foreclosure inventory in Ohio is the highest ever seen in a large state.

While it's good that the overall delinquency rate has edged down, the continuing rise in foreclosures shows that the industry still has challenges to work through. Add to the mix an increasing number of state and national legislators who want to put the brakes on foreclosure activity, and lenders are likely to see more scrutiny and regulatory oversight of the whole default management process. Competition for default management experts remains keen, we hear from lenders in the business. And that means everyone will be struggling to make sure they keep on top of the evolving default management and loss mitigation challenges. It's too early to declare that the worst is behind us. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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