Accelerated Foreclosure Activity Keeps Delinquency Growth in Check

Servicers have picked up the pace as they work through a backlog of home loans that have languished in late-stage delinquency status for months, and in some cases well over a year.

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Liquidation activity has accelerated, and as a result, ""Lender Processing Services"":http://www.lpsvcs.com (LPS) says lenders' foreclosure inventories â€" which the company defines as loans that have been referred to a foreclosure attorney but have not yet reached the final stage of foreclosure sale â€" have risen ""dramatically.""

A logical side effect is that increases in delinquency numbers have remained subdued as loans are pushed out the end of the pipeline faster than new delinquencies

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enter. For agency portfolios, i.e. ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com, LPS says the result has been a ""rapid decline"" in mortgages classified as delinquent.

Both GSEs have reported a steady fall-off in their seriously delinquent loans (90 or more days past due) since early this year. Fannie Mae's serious delinquency rate has dropped from 5.59 percent in February to 4.70 percent as of the end of August. Freddie Mac's rate fell from 4.20 percent to 3.83 percent during that same time period. Freddie says it slipped further to 3.82 percent in October.

Looking at the industry's overall delinquencies, LPS reports that as of the end of October, 9.29 percent of the nation's outstanding mortgages were at least 30 days past due but not yet in foreclosure. That's nearly 5 million loans, with 2.2 million in the 90-day-plus bucket.

The 9.29 delinquency rate was flat compared to the previous month, and down 8.4 percent from a year earlier, according to LPS' analysis.

Another 2 million loans were in the process of foreclosure at October month-end, resulting in a foreclosure inventory rate of 3.92 percent. That's up 2.1 percent from the previous month and 5.2 percent from October 2009.

Even with subdued growth in the delinquency rate, LPS says delinquencies remain about 2.7 times above the historical average. Foreclosure inventories are 7.4 times higher, and rising.