Residential mortgage delinquencies declined for the fifth consecutive quarter to roughly 6%, the lowest level since the fourth quarter of 2007, as subprime loan portfolios continue to shrink, according to the Mortgage Bankers Association.
The MBA's National Delinquency Survey for the second quarter of 2014 shows the delinquency rate of mortgages on one-to-four unit residential properties, which includes loans that are at least one payment past due but not in the process of foreclosure, decreased seven basis points from the previous quarter, and 92 basis points from a year earlier one year ago.
On a seasonally adjusted basis, quarter-to-quarter improvements were driven by a 142-basis-point decline in the delinquency rate of subprime adjustable-rate mortgages, to 20.2%, and a 14-basis-point decline for fixed-rate subprime loans, to roughly 18.7% in the second quarter. These gains combined with declines of 15 basis points and 16 basis points in the delinquency rate of loans guaranteed by the FHA and VA, respectively, helped offset a 20-basis-point increase for prime ARM loans, to almost 5.3%.
A growing number of prime ARM loans are going to special servicing, Mike Fratantoni, MBA's chief economist, said in a press release Thursday. These prime ARMs consist of a small number of recently originated jumbo loans that banks keep on their balance sheets, while the majority consists of loans originated in 2007 and earlier, he explained. And these "older cohorts are keeping the seriously delinquent numbers elevated despite the inflow of newer loans with stronger credit quality."
Meanwhile, strong job growth "and continued increases in home prices in most markets have been the main contributors to these steady improvements in mortgage performance," and historic low delinquency and foreclosure rates, Fratantoni said.
In the second quarter, loans in the foreclosure process declined 16 basis points from the first quarter and 84 basis points from a year earlier, to 2.49%, bringing the foreclosure inventory rate to its lowest since the first quarter of 2008. The serious delinquency rate — loans 90 days or more past due or in the process of foreclosure — declined 24 basis points from the first quarter and 108 basis points year-over-year, to 4.8%. Up to 75% of these seriously delinquent loans were originated in 2007 or earlier.
In addition, according to the report, loans made in recent years "continue to perform extremely well due to the improving market and tight credit conditions."
"We have returned to more typical seasonal patterns with respect to mortgage delinquency," Fratantoni said, as on an unadjusted basis, the 30-day and 60-day delinquency rates increased compared to the previous quarter. However, adjusted for the seasonal pattern, "we estimate that delinquencies were down for the quarter, and are down almost a full percentage point from last year."