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Delinquencies and Foreclosures Continue to Drop

The percentage of U.S. mortgages that are seriously delinquent fell to the lowest point since the first quarter of 2008 as the overall U.S. economy continues to pick up. The improving job market has contributed to helping more borrowers stay current on their mortgage payments and thereby avoid delinquencies and foreclosures.

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.04 percent of all loans outstanding at the end of the second quarter of 2014, according to the Mortgage Bankers Association’s National Delinquency Survey report released on Thursday.

Decreasing for the fifth consecutive quarter, the delinquency rate reached the lowest level since the fourth quarter of 2007. The delinquency rate, which includes loans that are at least one payment past due but does not include loans in the process of foreclosure,  decreased seven basis points from the previous quarter, and 92 basis points from one year ago.

U.S. Labor Department figures show that U.S. employers added more than 200,000 workers for the sixth straight month in July. In addition, the jobless rate rose to 6.2 percent as growing confidence prompted more Americans to look for work. The stronger job market means if someone becomes delinquent, they’re able to sell the home before the late-stage delinquency or the loan goes into the foreclosure process.

The U.S. mortgage industry has returned to more typical seasonal patterns with respect to mortgage delinquency, with 30-day and 60-day delinquency rates increasing from the first to the second quarter on an unadjusted basis, according to the report. Adjusting for the seasonal pattern, the report estimates that delinquencies were down for the quarter, and are down almost a full percentage point from 2013.

Nationally, the seriously delinquent rate fell by 24 basis points last quarter and has dropped 108 basis points over the past year. The loans that are seriously delinquent, either 90+ days late or in the foreclosure process, were primarily made prior to the downturn, with 75 percent of them originated in 2007 or earlier. Loans made in recent years continue to perform extremely well due to the improving market and tight credit conditions.

The report emphasized that a new emerging trend is the growth in the number of prime ARM loans serviced. Many of these are recently originated jumbo loans that are kept on banks’ balance sheets. A majority of outstanding prime ARM loans, however, were originated in 2007 and earlier and account for over 90 percent of seriously delinquent prime ARM loans.

The declining trend in later-stage delinquencies and foreclosures is clearly continuing at the national level, according to the report. Some states hardest hit by the crisis, for example California and Arizona, now have foreclosure inventory rates that are both back to pre-crisis levels and less than half the current national rate. On the other hand, despite declines in the last quarter, states with slower-moving judicial foreclosure regimes, like New Jersey, Florida and New York, have foreclosure inventory rates two to three times the national average.

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