Little Relief on Foreclosure Front

The delinquency and foreclosure rates again reached new highs in the first quarter, and the kicker is that this is not the bad news.

Rising default and foreclosure rates had been anticipated. The bad news is that there's still little evidence of a bottom in the mortgage credit cycle, and economists at the MBA say the trend still may be toward credit deterioration.

The overall delinquency rate, the number of loans entering foreclosure and the foreclosure inventory all reached record highs in the Mortgage Bankers Association's quarterly delinquency survey.

Jay Brinkmann, the MBA's vice president for research, attributed the continuing credit woes to areas hard hit by the downturn in home values, particularly California and Florida. The problems in these two states are "extraordinary," he said.

"Clearly the foreclosure conditions in California and Florida will get worse before they get better."

Overall, 8.82% of home loans were more than 30 days past due or in foreclosure nationally during the first quarter. Excluding the foreclosure inventory, 6.35% of loans were past due on a seasonally adjusted basis, up 151 basis points from one year earlier.

The percentage of loans in the foreclosure process rose to 2.47%, an increase of 119 basis points from one year earlier. That means the foreclosure inventory is almost double its level of just one year ago.

Foreclosure starts also moved into record territory, with 0.99% of loans entering the foreclosure process during the first quarter, an increase of 43 basis points from the pace of foreclosure starts one year earlier.

Mr. Brinkmann said that while foreclosure starts are up for all loan products, subprime ARMs are responsible for most of the damage.

While subprime ARMs account for just 6% of loans outstanding, they account for 39% of the foreclosures started during the first quarter. In a troubling sign that troubles are creeping into the prime sector, foreclosure starts on prime ARM loans accounted for 23% of starts. Prime ARMs account for 15% of loans outstanding.

The overall delinquency rate, which went up on a seasonally adjusted basis because first-quarter delinquencies did not fall as much as they normally do from the fourth quarter, suffered as more delinquent loans rolled into more serious categories of delinquency, particularly in states hard hit be falling home values.

"There is a higher rate of transition to 60 and 90 day due to home price conditions," Mr. Brinkmann told reporters on a conference call.

Adding to the problem is that ARMs and hybrid loans, as well as other specialized products that stretched the borrowing capacity of borrowers, were popular in places like California and Florida during the housing boom.

Arizona and Nevada, which also have seen falling home values and once accounted for a large number of investor home purchases, also are contributing to the rising default and foreclosure numbers.

"About 20 states had drops in their number of foreclosures started, including Michigan, Ohio and Indiana, where problems have been the most severe for the last several years," Mr. Brinkmann said.

But he also said that foreclosure prevention and mitigation programs, such as those promoted through the Hope Now alliance, have affected the foreclosure numbers and may be delaying or preventing loans from entering foreclosure. Hope Now recently reported that mortgage servicers provided loan workouts to 183,000 homeowners in April.

With 2.47% of the MBA delinquency survey's 45 million home loans at some point in the foreclosure process, it appears that well over one million home loans are now in foreclosure nationally. The MBA estimates that its survey covers 80% to 85% of all outstanding home loans.

Delinquencies Keep Rising

1 Yr. Qtr-Qtr

All Loans Q1 '07 Q4 '07 Q1 '08 Change Change

Total Past Due 4.84% 5.82% 6.35% 151 bps 53 bps

Foreclosure Inv. 1.28% 2.04% 2.47% 119 bps 43 bps

Foreclosure Starts 0.58% 0.83% 0.99% 41 bps 16 bps

Seriously Delinquent 2.23% 3.62% 4.03% 180 bps 41 bps

SOURCE: MBA (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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