It's official! With the nation on the brink of a double dip recession, mortgage delinquency rates, especially 30-day delinquencies-- have shifted course and they are trending up again.
The good news is that delinquency rates, which are a precursor to foreclosure and short sale rates, still trail last year's level by 141 basis points, according to the quarterly delinquency report from the Mortgage Bankers Association.
The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted (SA) rate of 8.44 percent of all loans outstanding as of the end of the second quarter of 2011, an increase of 12 basis points from the first quarter of 2011, and a decrease of 141 basis points from one year ago, according to the report.
"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. Mortgage delinquencies are no longer improving and are now showing some signs of worsening," he said. "The good news is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due. The bad news is that drop is offset by an increase in newly delinquent loans one payment past due," said Jay Brinkmann, the Mortgage Bankers Association's Chief Economist.
The 30+ day delinquency figures are not nearly as good. Loans in that bucket declined 5 basis points and 2 basis points to 3.46 and 2.22 percent respectively while on a quarterly basis the 30+ day rose 11 basis points and 32 basis points. The 60+ days delinquency bucket was down 15 basis points from one year ago, but up from last quarter 2 basis points and 9 basis points. One basis point is the equivalent of one one hundredth percentage point.
Brinkmann compared the current housing industry to an accident victim saying that one would love to rush to patch up the wounds and start rehabilitating the patient, "but first we must stop the bleeding which, in this case is delinquent loans." Brinkmann said the current figures indicate that it may be a while before we see the patient healing and moving toward rehabilitation.
The increase in early delinquencies, Brinkmann said, is not surprising. "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. Weekly first-time claims for unemployment insurance started the quarter at 385,000 but finished the quarter at 432,000. The unemployment rate started the quarter at 8.8 percent but climbed to 9.2 percent by the end of the quarter."
The numbers for more advanced delinquencies are more encouraging. The percentage of loans on which foreclosure actions were started during the second quarter was 0.96 percent, down 12 basis points from last quarter and down 15 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure; those equaled 4.43 percent of loans, down 9 basis points from the first quarter and 14 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.85 percent, a decrease of 25 basis points from last quarter, and a decrease of 126 basis points from the second quarter of last year.
The combined percentage of loans in foreclosure or at least one payment past due was 12.54 percent on a non-seasonally adjusted basis, a 23 basis point increase from last quarter, but 143 basis points lower than a year ago.
Foreclosure start rates fell to their lowest level since the fourth quarter of 2007 and foreclosure inventory rates were at their lowest level since the third quarter of 2010. The economist disputed what he said were claims of others that the drop in foreclosure starts is a temporary effect of paperwork issues and presages a big surge in foreclosures at some point. The MBA report, he said does not support this. Paperwork may be preventing some evictions and affecting REO, but the only place there appears to be an overhang of inventory is in judicial states. Nine states currently have a higher rate of foreclosure than the national average of 4.43 percent and all but one of these (long-time trouble spot Nevada) is a judicial foreclosure state. Florida at 14.39 percent has a rate more than three times the national average and nearly twice that of the second highest state, Nevada.
On a seasonally adjusted basis, the overall delinquency rate increased for all loan types. The seasonally adjusted delinquency rate increased 15 basis points to 4.74 percent for prime fixed loans and increased 51 basis points to 11.76 percent for prime ARM loans. For subprime loans, the delinquency rate increased 58 basis points to 22.62 percent for subprime fixed loans and increased 87 basis points to 27.18 percent for subprime ARM loans. FHA and VA loans also saw increases, with the delinquency rate increasing 59 basis points to 12.62 percent for FHA loans and increasing 12 basis points to 7.05 percent for VA loans. Statistics for loans in foreclosure and foreclosure starts also decreased for each loan type with the exception of subprime fixed-rate loans which saw an increase in the foreclosure inventory rate of 48 basis points or 11.01 percent.