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Mortgage Delinquencies Drop in Third Quarter: MBA

The nation's mortgage delinquency rate declined in the third quarter, the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) said Thursday, as the job market showed signs of what the trade group's economic team called ""marginal improvements.""

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But lenders are still dealing with a massive backlog of defaults, and they stepped up initiations of foreclosure proceedings during the July to September period. Even with an increase in foreclosure starts, MBA says the ratio of home loans in the foreclosure process declined, signaling servicers are pushing unpaid mortgages through the pipeline at a faster pace â€" some might argue too fast with all the controversy surrounding robo-signing and deficient documentation.

According to ""MBA's latest figures"":http://www.mortgagebankers.org/NewsandMedia/PressCenter/74733.htm, the delinquency rate for mortgage loans on one-to-four unit residential properties dropped 72 basis points from the second quarter to 9.13 percent of all loans outstanding in the third. The rate is down 51 basis points from one year earlier. (The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.)

The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up from 1.11 percent the previous quarter. Foreclosure start rates increased across all loan types, with prime fixed loans setting a new record high in MBA's quarterly survey.

According to Michael Fratantoni, MBA's VP of research and economics, the increase in foreclosure starts is just a ""natural progression of defaulted loans moving through the process.""

Total loans in the process of foreclosure equaled 4.39 percent of the nation's outstanding mortgages at the end of the third quarter, according to MBA's analysis. That's down from 4.57 percent in the second quarter and 4.47 percent during the third quarter of 2009.

As more loans exit the foreclosure process, REO inventories are growing. Fratantoni says he expects existing home sales in 2011 to be 4.8 million - roughly the same as in

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2010. While that’s not a fast enough pace to bring down the overhang supply, he expects to see home prices stabilize over the next year.

Fratantoni also noted that the industry's problems with flawed legal paperwork that prompted a number of major servicers to suspend foreclosures temporarily aren't reflected in the Q3 numbers, but he expects the foreclosure inventory rate to be impacted in Q4 and the first half of 2011.

Based on MBA's analysis, a total of 13.78 percent of the nation's mortgages are not current (the combined share of loans at least one payment past due or in foreclosure). That's down 19 basis points from 13.97 percent last quarter.

MBA says there are about 50 million outstanding first-lien home loans in the United States. That means about 6.9 million are currently past due or in foreclosure. The trade association’s estimates are closely in line with figures released earlier this week by Lender Processing Services (LPS), which put the non-current count at 7 million.

“One of the most important trends in terms of differences across products is the change in the composition of the market,” Fratantoni said, “with a rapidly shrinking pool of subprime and prime ARM [adjustable-rate mortgage] loans, and a significant increase in the number and proportion of FHA [Federal Housing Administration] loans.”

According to MBA’s market data prime fixed and FHA loans currently make up almost 78 percent of loans outstanding and accounted for more than half of the foreclosures started in the third quarter. A year ago, prime fixed and FHA loans made up 39 percent of foreclosure starts.

Compared to its peak around 3 years ago, the number of subprime ARM loans outstanding has decreased by about 50 percent, while prime ARM loans outstanding has declined by about 36 percent. Over the last 3 years, the number of FHA loans outstanding has doubled.

MBA’s report shows that across all loan types, the states with the highest overall delinquency rates were Mississippi (14.13 percent), Nevada (12.88 percent), and Georgia (12.46 percent).

Based on foreclosure inventory, the states with the highest rates were Florida (13.68 percent), Nevada (9.72 percent), and New Jersey (6.73 percent).

Based on foreclosure starts, the three states with the highest rates were Nevada (3.17 percent), Arizona (2.44 percent), and Florida (2.32 percent).

Fratantoni says California is seeing improvement in its delinquency and foreclosure inventory numbers, and that is helping to bring the national numbers down.

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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