Mortgage Bankers: Short-term Delinquencies Rise but Long-term Delinquencies and Foreclosure Starts Decline

According to the latest Mortgage Bankers Association’s mortgage delinquency survey, total loan delinquencies as a share of all outstanding loans rose to 8.44% in the second quarter of 2011, an increased by 12 basis points. However, the share of mortgage loans in foreclosure fell versus the first quarter, sliding 9 basis points to 4.43%.

MBA’s Chief Economist Jay Brinkman discussed the divergence between short-term mortgage delinquencies and long-term delinquencies:

“The good news is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due. The bad news is that drop is offset by an increase in newly delinquent loans one payment past due.…Mortgage loans that are one payment, or 30 days, past due are very much driven by changes in the labor market, and the increase in these delinquencies clearly reflects the deterioration we saw in the labor market during the second quarter.”

Foreclosure starts fell to 0.96% of all outstanding loans during in the second quarter, which is the lowest reading for this metric since the fourth quarter of 2007. With the share of loans in the 90-day delinquency bucket also declining for the fourth quarter in a row, down to 3.43%, Dr. Brinkman suggests that fears of a growing backlog of foreclosures, at least at the national level, are not supported by the data.

Approximately 65% of seriously delinquent loans were originated between 2005 and 2007. Loans underwritten prior to 2005 have surpassed the point in which a loan would typically default. Mortgage loans taken out since 2008 have performed better, due to more stringent underwriting. As the bad loans from the 2005-2007 time frame are worked off, this should lead to a further easing in foreclosure rates.

State-level data continue to illustrate just how concentrated the foreclosure crisis is, as nearly 40% of all loans in foreclosures can be found in Florida, California, Nevada and Arizona. On its own, Florida accounts for 24.3% of the national total thanks to 14.4% of all mortgage loans in the state being in foreclosure during the second quarter of 2011. In Nevada, 8.2% of loans are in foreclosure. More troubling is the fact that new foreclosure starts remain extremely high in Nevada, as the state possessed a rate more than twice the national average with 2.25% of loans entering foreclosure. Florida (1.7%), Arizona (1.6%), Georgia (1.3%) and Rhode Island (1.2%) are the other states that contained the highest rate of foreclosures initiated during the second quarter of 2011.

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