LPS: Rate of New Problem Loans Approaching Pre-Crisis Levels

The rate of new loans that rolled into serious delinquency fell below 1 percent for the first time since 2007, ""Lender Processing Services"":http://www.lpsvcs.com/Pages/default.aspx (LPS) reported Monday.

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The new problem loan rate--defined as seriously delinquent mortgages that were current six months ago--inched down toward pre-crisis levels to 0.84 percent in March. The new problem loan rate averaged 0.55 percent from 2000 to 2004. At its peak in January 2009, the new problem loan rate stood at 2.89 percent.

As expected, when categorizing borrowers by equity position, LPS found borrowers with higher levels of negative equity tended to have higher new problem loan rates.

""Looking at the March data, we see that borrowers with equity are actually outperforming the national average -- at 0.6 percent, this group is quite close to pre-crisis norms,"" said Herb Blecher, SVP of applied analytics at LPS. ""The further underwater a borrower gets, the higher those problem rates rise.""

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For example, borrowers with loan-to-value (LTV) ratios of 100-110 percent had new default rates that were twice the national average at 1.9 percent, while borrowers with LTVs higher than 150 percent had new default rates of 4 percent.

However, as home prices continue to increase, more borrowers are rising out of negative equity. LPS reported the share of borrowers in negative equity, or with LTVs greater than 100 percent, has fallen 41 percent since January 2012.

Even sand states (Arizona, Florida, Nevada, and California), which tend to have higher levels of loans in negative equity, have seen their share decline by an average of 40 percent since January 2012.

At its peak, the number of borrowers in negative equity reached 17 million in 2011 but is now at 9 million, according to data from LPS.

After observing foreclosure trends, LPS reported foreclosure sales in California have decreased 35 percent in the first quarter from the previous quarter due to the impact of the California Homeowner Bill of Rights (HBOR). Nationwide, foreclosure sales averaged a 13 percent increase during the same time period when excluding California.

Month-over-month, foreclosure sales rose 10.1 percent in March, while foreclosure starts decreased 8.2 percent. LPS added the California HBOR had little impact, if any, on foreclosure starts since the decline in California was similar to the nationwide average.