The Mortgage Bankers Association’s National Delinquency Survey showed the delinquency rate on first-lien residential mortgages dropped 41 basis points to 7.58% during the fourth quarter of 2011 (down from 7.99%). While the foreclosure inventory remained elevated from a historical perspective to close out the calendar year, it still registered a modest decline between the third and fourth quarters of 2011, falling 5 basis points to 4.38%. The share of loans entering the foreclosure process during the final three months of the year slipped to 0.99%–marking only the second time in the past four years the foreclosure starts rate fell below 1%.
Jay Brinkmann, MBA’s Chief Economist, discussed some of the observed improvements in mortgage loan performance:
“Mortgage performance continued to improve in the fourth quarter, reflecting the improvement we saw in the job market and broader economy. The total delinquency rate and foreclosure starts rate decreased and are back down to levels from three years ago. A major reason is that the loans that are seriously delinquent are predominantly made up of loans originated prior to 2008 and this pool is steadily growing smaller as a percent of total loans outstanding. In addition, employment is the key driver of mortgage performance and the mortgage delinquency rate is actually falling faster than the unemployment rate is declining,”
A promising piece of data in last quarter’s results was the broad-based geographic improvement in mortgage loan performance. The share of seriously delinquent loans remained unchanged or fell in 25 states, including the hardest-hit areas of California, Florida, Nevada and Arizona. While this represents an improvement, the foreclosure crisis still very much remains concentrated geographically as five states—Florida, California, Illinois, New York and New Jersey—account for more than half of all foreclosures yet only represent less than a third of all serviced loans. By itself, Florida accounts for nearly 25% of the nation’s total foreclosure inventory.
The legal process has had a palpable effect on the level and trajectory of foreclosure activity across states. Indeed, of the top 15 states in terms of the current share of first lien mortgages in foreclosure, 14 use the judicial process to handle foreclosure cases. Furthermore, foreclosure inventory rates in judicial states are roughly four percentage points higher and have seen rates trend appreciably higher while non-judicial process states have experienced modest declines in foreclosure rates during the past two years.