Loan Delinquencies Rise Unexpectedly During the Second Quarter

The Mortgage Bankers Association’s National Delinquency Survey revealed a surprising increase in the seasonally adjusted delinquency rate during the second quarter of 2012. The total share of first-lien residential mortgages with past due payments increased 18 basis points to 7.58%. In addition, all three delinquency buckets registered increases compared to the first quarter, with the largest quarter-to-quarter jump occurring among loans 90+ days past due (3.06% up to 3.19%). While this increase in delinquencies might be explained by weaker readings on employment and GDP growth during the second quarter, Jay Brinkmann, MBA’s Chief Economist, noted seasonal adjustments for the quarter could also be disproportionately contributing to the increase.

The foreclosure inventory fell 12 basis points to 4.27% and the foreclosure starts rate remained unchanged at 0.96% last quarter (both are not seasonally adjusted). Each measure would have come in at an appreciably lower level if not for a sizable jump in foreclosure activity for FHA loans. This increase in foreclosed FHA loans does not necessarily reflect a significant degradation in FHA loan performance, because most of these foreclosures arose from servicers restarting foreclosure actions in the aftermath of the mortgage servicer settlement agreement.

Foreclosure starts were unchanged or lower compared to the first quarter of 2012 in 31 states, but a handful of states registered very large quarter-to-quarter increases in foreclosure actions. Maryland’s foreclosure start rate surged 119 basis points to 1.95%, but again this was largely a result of foreclosures being resumed in the wake of the servicer settlement. Washington also experienced a large gain in foreclosure starts due to a filing requirement that delayed new foreclosures by up to 3 months.

Florida saw the share of mortgage loans in foreclosure fall to 13.7%–its lowest point in nearly two years—and the foreclosure starts rate (1.48%) experienced its lowest reading since late 2007. Nonetheless, the state remains front and center in terms of the nation’s overall foreclosure inventory, containing 23% of the national total. In total, five states (Florida, California, Illinois, New York and New Jersey) account for just above half of the nation’s foreclosure inventory, but represent less than 32% of all serviced loans in the U.S.

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