The Mortgage Bankers Association’s National Delinquency Survey revealed a 45 basis point decline in the share of delinquent loans (from 8.44% down to 7.99%) during the third quarter of 2011. This marks the lowest reading for loan delinquencies as a share of total loans outstanding in nearly three years. However, the share of mortgage loans in the foreclosure process remained unchanged at 4.43% while the foreclosure start rate increased 12 basis points to 1.08%.
Michael Fratantoni, MBA’s Vice President of Research and Economics, discussed likely reasons for the slight divergence between delinquencies and foreclosures:
“While the delinquency picture changed for the better in the third quarter, the foreclosure data indicated that we are not out of the woods yet and that the issues continue to vary by geography. A closer look shows that there are different trends driving these results. The increase in the foreclosure starts rate this quarter was driven by large increases from just a few servicers, concentrated in certain ‘hardest hit’ states. For most servicers, the foreclosure starts rate was little changed over the quarter. In these ‘hardest hit’ states, the few large changes reflects the progression of delinquent loans through the foreclosure process. Outside of these states, improvement has continued, although at a slow pace due to the still-weak job market”
The proportion of loans in the 30-, 60- and 90+ day delinquency buckets all declined from the previous quarter. In fact, the share of mortgages 30 days overdue slipped to its lowest point since the first half of 2007, while the 90+ day overdue bucket registered its lowest reading since the fourth quarter of 2008. Loans 90 days or more past due are particularly important indicator for foreclosure activity since these mortgages are the least likely to become current (via modification or some other procedure) and can generate an immediate notice of foreclosure from the loan’s servicer. With a smaller share of loans at this stage, as well as the declining share of mortgages less than 90 days overdue, the foreclosure pipeline is being worked off.
The worst of the foreclosure crisis remains centralized in a few key states. Indeed, the top five states contain nearly 53% of the foreclosure inventory yet account for less than one third of all serviced loans. Florida accounts for nearly one-fourth of all mortgage loans in foreclosure and approximately 14.5% of the state’s loan inventory has entered foreclosure. Florida is one of many states wherein the judicial system guides the foreclosure process, and these states have seen foreclosure inventory rates trend higher over the past year due to a growing backlog of foreclosure cases slowing down the courts.
Meanwhile, those states that do not have a judicial process have had foreclosure inventories trend lower for nearly the past two years. In terms of foreclosures started during the third quarter of 2011, Nevada posted the highest start rate (2.48%) followed by Florida (1.96%), Arizona (1.67%), Rhode Island (1.66%) and California (1.45%).