Delinquencies See Biggest Year-to-Date Drop Since 2002

Delinquencies saw the steepest year-to-date drop since 2002 in May as new problem loan rates inched toward pre-crisis lows, according to ""Lender Processing Services'"":http://www.lpsvcs.com/Pages/default.aspx (LPS) Mortgage Monitor report released Monday.

Since the end of December 2012, the delinquency rate has fallen by more than 15 percent to 6.08 percent in May.

""Though they are still approximately 1.4 times what they were, on average, during the 1995 to 2005 period, delinquencies have come down significantly from their January 2010 peak,"" said Herb Blecher, SVP of applied analytics at LPS.

Delinquencies on prime and nonprime loan products have plummeted 43 percent from the 2010 peak, according to LPS.

""In large part, this is due to the continuing decline in new problem loans -- as fewer problem loans are coming into

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the system, the existing inventories are working their way through the pipeline,"" he added.

At 0.73 percent, the rate for new problem loans now reflect annual averages seen from 2005 to 2006. And, the rate is approaching 2000 to 2004 levels, when the rate averaged 0.55 percent.

LPS also reported the foreclosure inventory rate, which stood at 3.05 percent in May, is 5.7 times above than the 1995 to 2005 average. On the upside, the foreclosure rate on prime and nonprime loan types is still down by 20 percent from the January 2010 peak.

Negative equity has also seen a dramatic fall, but continues to adversely impact new problem loan rates, according to LPS.

""As we've noted before, negative equity appears to still be one of the strongest drivers of new problem loans, and -- primarily buoyed by home price increases nationwide -- that situation also continues to improve,"" Blecher added.

Home prices, which increased 8 percent year-over-year in April, have brought down the rate of loans in negative equity to under 15 percent, LPS reported.

Currently, the national equity rate is at 14.7 percent, which translates into 7.3 million loans and represents a 47 percent annual decrease.

Certain states continue to struggle with a high share of underwater loans. In Nevada and Florida, the rate is more than double the national averages, at 32.7 percent and 29.8 percent, respectively.