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Early Delinquencies Rise Amid Outlook for Continuing Deterioration

The delinquency rate of first-lien residential mortgages increased to 8.44 percent of all loans outstanding as of the end of the second quarter of 2011, the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) reported Monday.


The delinquency rate includes loans that are at least one payment past due but not yet in foreclosure. Although the rate is down 141 basis points from a year earlier, it rose 12 basis points when compared to the first quarter of 2011.

The biggest increase came from loans in the earliest stage of delinquency â€" just one installment, or 30 days past due. The share of loans behind by one month’s payment jumped 11 basis points, from 3.35 percent in the first quarter to 3.46 percent in the second.

""Mortgage loans that are one payment, or 30 days, past due are very much driven by changes in the labor market, and the increase in these delinquencies clearly reflects the deterioration we saw in the labor market during the second quarter,” commented Jay Brinkmann, MBA's chief economist.

He explained that weekly first-time claims for unemployment insurance started the second quarter at 385,000 but finished the period at 432,000. Over the same period, the unemployment rate climbed from 8.8 percent to 9.2 percent.

""While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped,” Brinkmann said. “Mortgage delinquencies are no longer improving and are now showing some signs of worsening.""

Paul Dales, senior U.S. economist with ""Capital Economics"":http://www.capitaleconomics.com says the fact that the rise in the delinquency rate came from more homeowners falling behind on their mortgage payments for the first time is “the most worrying” aspect of the report.

“The weaker economy and rebound in the unemployment rate are therefore already taking their toll on the housing market,” Dales said.


The latest figures mark the second increase recorded in the 30-day delinquency bucket in as many quarters.

Sixty-day delinquencies rose just 2 basis points, according to MBA’s study, from 1.35 percent at the end of March to 1.37 percent by the end of June. Ninety-plus day delinquencies actually dropped 1 basis point, declining from 3.62 percent to 3.61 percent.

Brinkmann characterized the decrease in long-term delinquencies of three or more payments as “the good news” in the report, but he was quick to add, “The bad news is that drop is offset by an increase in newly delinquent loans.""

Foreclosure statistics also declined, according to MBA. The trade group says the ratio of loans on which foreclosure actions were started during the second quarter was 0.96 percent, down 12 basis points from the previous period and down 15 basis points from one year ago. Foreclosure starts have fallen to their lowest level since the fourth quarter of 2007.

The percentage of loans in the foreclosure process at the end of Q2 was 4.43 percent, down 9 basis points from the first quarter and 14 basis points lower than one year ago. MBA reports that the foreclosure inventory rate is the lowest it’s been since the third quarter of 2010.

“While some have argued that this drop in foreclosures is a temporary drop which does not reflect the problems yet to come, this does not appear to be the case, at least at the national level,” Brinkmann said. “There are still many problem loans that need to be resolved, but the idea that there is a growing backlog of loans being held back from foreclosure is simply not supported by these numbers.”

He went on to explain, “The percentage of loans 90 days or more past due continues to fall along with the foreclosure rate….Were there a growing backlog, we would expect to see the 90-plus day delinquent category increasing.""

Seriously delinquent loans â€" those either 90 days or more past due or somewhere in the foreclosure process â€" have declined for four consecutive quarters. The serious delinquency rate was 7.85 percent at the end of the second quarter, a decrease of 25 basis points from the previous quarter and down 126 basis points from the second quarter of last year.

Brinkmann says perhaps more importantly, the vast majority of these loans were originated before 2008. While loans originated between 2005 and 2007 accounted for only 30 percent of the total loan pool, they accounted for 65 percent of the seriously delinquent loans.

The combined percentage of all loans in foreclosure or at least one payment past due was 12.54 percent as of the end of June, according to MBA. That overall tally represents a 23 basis point increase from the previous quarter, but is 143 basis points lower than the same period last year.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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