MBA: Delinquencies, Foreclosures Continue to Climb

Foreclosures and mortgage delinquencies are still mounting and will continue to rise until the first quarter of 2011, driven primarily by increasing job losses, according to a new report issued by the Mortgage Bankers Association (MBA) on Thursday.
The industry organization found that by the end of the first quarter of this year, 12.07 percent of the nation's homeowners were behind on their mortgage - meaning they fall into the bucket of being at least one payment past due to already in foreclosure. This figure was the highest ever recorded in the MBA national delinquency survey.
According to MBA, the first quarter delinquency rate for mortgage loans on one-to-four-unit residential properties was 8.22 percent on a non-seasonally adjusted basis, down from 8.63 percent in the fourth quarter of 2008. However, the association cautioned that delinquency rates always decline in the first quarter of the year due to a variety of seasonal factors.
After accounting for these factors, MBA reported a seasonally adjusted delinquency rate of 9.12 percent of all loans outstanding as of the end of the first quarter. To put things into perspective, the seasonally adjusted rate is the highest in the MBA's records going back to 1972, and the unadjusted rate is the highest in the first quarter of any year.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. MBA found that the percentage of homes in foreclosure at the end of the first quarter was 3.85 percent, and foreclosure actions were initiated on 1.37 percent of first mortgages during the first three months of 2009. Both of these figures also set new record highs.
According to Jay Brinkmann, MBA's chief economist, the increase in the foreclosure number is sobering but not unexpected. ""The rate of foreclosure starts remained essentially flat for the last three quarters of 2008 and we suspected that the numbers were artificially low due to various state and local moratoria, the Fannie Mae and Freddie Mac halt on foreclosures, and various company-level moratoria,"" Brinkmann said. ""Now that the guidelines of the administration's loan modification programs are known, combined with the large number of vacant homes with past due mortgages, the pace of foreclosures has stepped up considerably.""
Brinkmann stressed that in looking at the quarterly foreclosure numbers, it is important to focus on what has changed, and the most glaring change, he said, is the shift of the problem away from subprime and option adjustable-rate mortgages to prime fixed-rate loans.
Based on MBA's study, the foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. According to Brinkmann, this fact demonstrates the impact of the recession and unemployment on mortgage defaults.
What has not changed, however, is the staggering effect housing markets in the troubled states of California, Florida, Arizona, and Nevada are having on the national numbers. Brinkmann says that these four states accounted for about 46 percent of the foreclosure starts in the country, and represented half of the increase in prime fixed-rate foreclosure initiations.
While the national foreclosure start rate was 1.37 percent in the first quarter, Brinkmann pointed out that in California, Florida, Nevada, and Arizona it was 2.45 percent. ""Absent those four states, the national rate would have been 1.01 percent,"" Brinkmann said.
Severe home price declines have taken their toll on mortgage performance in the Sun Belt states. MBA reported that 10.6 percent of all mortgages in Florida are now somewhere in the process of foreclosure. In Nevada it is 7.8 percent, Arizona 5.6 percent, and California 5.2 percent.
While these four states hold the lions-share of foreclosures, Brinkmann says the effects of recession are widespread and have left an imprint on essentially every state in the country.
""Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve,"" Brinkmann said. ""MBA's forecast, a view now shared by the Federal Reserve and others, is that the unemployment rate will not hit its peak until mid-2010.""
Since changes in mortgage performance lag changes in the level of employment, Brinkmann and the MBA do not expect an improvement in delinquency rates and foreclosures until the early part of 2011.