FHA: Serious Delinquencies Decline, But Foreclosures Still Rising

The serious delinquency rate on FHA-insured home mortgages has been declining, loan modifications are accelerating, but foreclosures are still rising at an alarming rate. Yet, Federal Housing Administration officials are optimistic that foreclosures will start to decline if delinquencies continue to fall. "It is simply a timing lag" because servicers are still dealing with a large inventory of problem FHA loans, said chief risk officer Bob Ryan. FHA recently reported that 8.5% of its insured single-family loans were 90 days or more past due in April, down from 8.8% in March and 9.17% in February. "If we continue the trend of declining delinquencies, we will see a corresponding decline in claims (foreclosures) several months down the road," he said. (FHA officials refer to foreclosures as claims.) Servicers modified 70,800 FHA loans during the first seven months of fiscal 2010, up 78% from the same period in FY 2009, according to an April FHA report. But foreclosures totaled 53,300 during that same period, up 47% from FY 2009. The chief risk officer noted that current trends are positive and foreclosures should decline. However, he is worried about the performance of the modified loans and redefaults, which would push up foreclosures. "We hope we have been able to achieve modifications that provide meaningful relief for the borrowers," Ryan told National Mortgage News. The housing market is "fragile," he said. A weakening economy, more jobs losses, or other economic events, "could cause them to re-default," he said.