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One Bright Spot

It isn't easy for servicers to find bright spots in recent delinquency reports, but we think we've spotted one.

It's true that the Mortgage Bankers Association's most recent delinquency numbers at first seem like nothing but more bad news. Overdues and defaults continue to jump, and the subprime books of business are a catastrophe.

But here's what we noticed: a peculiar inversion in which some big states are showing more foreclosures than overdues. And, the country as a whole is trending that way.

We haven't seen this particular inversion before, and it seems counterintuitive that a state can have more loans in foreclosure than in late status. But what we think it means is that the foreclosure flood is more than halfway finished in those states, which would be good news.

Take the state of Florida. In the Sunshine State, more loans are in foreclosure (37.58%) than are overdue (22.61%). That must mean the foreclosure bust there is more than half over.

California is also inverted, with more loans in foreclosure (26.21%) than overdue (25.43%). Hopefully, the foreclosure crisis in the Golden State is now closer to the end than the beginning.

Nevada, the third state in the poster children trilogy, is also inverted, at 27.65% in foreclosure and 23.02% overdue.

Two other states, New Jersey and Minnesota, are also inverted on subprime ARMs, and the country as a whole isn't too far from being inverted, by 400 basis points on 2,433,593 loans serviced. Perhaps the worst of it will be reached in the next quarter or two (this depends on what the effect of the government's plan is).

Subprime ARMs are the worst book of business in the MBA report, with nearly half overdue. Federal Housing Administration ARMs are holding up better than subprime vintages, whose borrower credit profiles they can suggest. Nationwide, just 4.03% of these 151,237 loans serviced are in foreclosure, and 17.57% overdue. The contrast between prime and subprime loans is stark. Just 1.88% of all prime loans are in foreclosure. Compare that to 13.71% of all subprime mortgages.

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