Delinquency Survey Shows Positive Developments
The US housing market may be entering a “third stage” of foreclosures according to the MBA’s Chief Economist Jay Brinkman.</p
The initial fallout from subprime and option ARMrnmortgages constituted the first stage. The second stage was seen when systemic challenges posed to the financial system by evolving recession manifested themselves in the housing market (credit availability down, prices down, demand down, all at a time of unprecedented inventory of homes). Now, in the third stage, we are seeing the first signs of potential recovery. </p
The press conference accompanied thernrelease of the MBA’s First Quarter National Delinquency Survey released by MBA whichrnshowed that, in the first quarter the seasonally adjusted foreclosure rate wasrn8.32 percent, an increase of seven basis points from the previous quarter butrndown 174 basis points from the same period in 2010. The non-seasonally adjusted rate was 7.79rnpercent, down 117 basis points from Q4. The increase in the seasonally adjustedrnrate was due to a nine basis point bump in the 30-day delinquent category, nowrnat 3.35 percent. The delinquency rate includesrnloans that are at least one payment past due but does not include loans inrnforeclosure. </p
Brinkmann said that national foreclosure rates arernmisleading because they are dominated by areas that are large and have outsizedrnproblems such as Florida. The numbers ofrnhomes in foreclosure in Florida are larger than the combined total of homernloans outstanding in 22 U.S. states and the top five states in terms ofrnforeclosures account for more than half of the nation’s total. If those states are removed from the equationrnhe said, there are clear signs of a market on the mend. In Q1 38 states had foreclosure rates belowrnthe national average. </p
Short-term delinquencies remain at pre-recession levels. Loansrn90 days or more delinquent have now dropped for five straight quarters and arernat their lowest level since the beginning of 2009, 3.62 percent. rnForeclosure starts are at 1.08 percent, the lowest level since the end of 2008rnfollowing a 19 basis point drop, the second largest ever. The percentagernof loans somewhere in foreclosure is down from last quarter’s record high ofrn4.64 percent to 4.52 percent, one of the largest drops MBA has ever seenrnalthough, Brinkmann said, the reasons for the drop differ from market tornmarket. The serious delinquencyrnrate, the percentage of loans that are 90 days or more past due or in thernprocess of foreclosure, was 8.10 percent, a decrease of 50 basis points fromrnlast quarter, and a decrease of 144 basis points from the first quarter of lastrnyear.</p
The combined percentage of loans inrnforeclosure or at least one payment past due was 12.31 percent on arnnon-seasonally adjusted basis, a 129 basis point decline from 13.60 percentrnlast quarter.</p
By loan type the seasonally adjusted rate increased fromrn5.48 percent to 5.50 percent from the fourth quarter for prime loans, fromrn23.09 percent to 24.01 percent for subprime loans, 6.67 percent to 6.93 percentrnfor VA loans. FHA rates declined 24rnpercent to 12.03 percent. On arnseasonally adjusted basis the rate expressed in basis points declined 182 forrnprime, 320 for subprime, 112 for FHA, and 103 for VA loans on a year-over-yearrnbasis.</p
For the first time the Delinquency Report breaks down loansrnby type and year of origination and compares the incidence of delinquency forrneach type against its presence in the portfolio. Loans of all types originatedrnprior to 2005 make up nearly one third of the existing portfolio but constituternonly 21 percent of delinquent loans. Inrneach subsequent year until 2009 the incidence of delinquencies represents arnhigher share of the portfolio than do originations from that period. Elevenrnpercent of the loans originated in 2005 but 17 percent of delinquencies arernfrom that loan vintage. In 2006 is wasrn11 percent v 26 percent; in 2007 10 percent against 22 percent, while in 2008rnoriginations shrunk to 8 percent but 9 percent of the delinquencies are fromrnthat group. </p
“Of particular importance is that the drop in thernpercentage of loans 90 days or more past due was driven by improving numbersrnfor loans originated between 2005 and 2007. These are the loans that drove thernmortgage market collapse and now represent about 31 percent of loansrnoutstanding but 65 percent of the loans seriously delinquent. Given that loansrnoriginated during this period are now past the point where loans normallyrndefault, and that loans originated since then generally have better creditrnquality, mortgage performance should continue to improve,” Brinkmann said.rn</p
The rate of foreclosure activity in judicial states isrncontinuing to rise and is now near 7 percent while the rate is dropping inrnnon-judicial states and is now close to 3 percent. This information is confounded by the actualrnstates that fall into the two categories. rnOnly three non-judicial states rank above the national average andrnFlorida with over a 14 percent rate is a judicial state. However, Brinkmann noted that the states withrnthe biggest increases in the number of loans in foreclosure were Florida, NewrnJersey, and Illinois, all states with judicial processes while the six statesrnwith the largest decreases were California, Arizona, and Michigan, non-judicialrnjurisdictions. However, all six Statesrnrecorded declines in 90+ day delinquencies and in foreclosure starts. It is thernlaws in judicial states that lengthen the timeline and increase the number ofrnloans that sit in foreclosure, Brinkmann said.</p
On arnseasonally adjusted basis, the overall delinquency rate increased for all butrnFHA loans, with the biggest increases coming in the subprime categories. Thernseasonally adjusted delinquency rate stood at 4.59 percent for prime fixedrnloans, 11.25 percent for prime ARM loans, 22.04 percent for subprime fixedrnloans, 26.31 percent for subprime ARM loans, 12.03 percent for FHA loans, andrn6.93 percent for VA loans. </p
Thernpercentage of loans in foreclosure, also known as the foreclosure inventoryrnrate, decreased 12 basis points overall to 4.52. The foreclosure inventory raternfor prime fixed loans, which make up the largest portion of the surveyrn(accounting for 63 percent of all loans outstanding), decreased eight basisrnpoints to 2.59 percent. The rate for prime ARM loans decreased 69 basis pointsrnfrom last quarter to 9.53 percent. Subprime fixed loans saw an increase of 67rnbasis points to 10.53 percent, which is a new record high in the survey. Thernrate for subprime ARM loans increased 26 basis points to 22.26 percent, while thernrate for FHA loans increased five basis points to 3.35 percent and the rate forrnVA loans increased four basis points to 2.39 percent.</p
Thernforeclosure starts rate decreased 16 basis points for prime fixed loans to 0.68rnpercent, 42 basis points for prime ARM loans to 2.38 percent, 19 basis pointsrnfor subprime fixed to 2.56 percent and 57 basis points for subprime ARMs torn3.67 percent. The foreclosure starts rate also decreased nine basis points forrnFHA loans to 0.93 percent and 15 basis points for VA loans to 1.02 percent.rn </p
Inrnanswer to a reporter’s question about th possibility banks were holding REOrnoff of the market, Brinkmann said there might be isolated instances where arnbank has determined a property would not sell at any time, but certainly nornconcerted effort in that respect. Therernis, he said, instability in cartels that do not allow that type of conspiracyrnto have any success.
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