August 28, 2010 – The newly released Delinquencies and Foreclosure report by the Mortgage Bankers Association (MBA) largely mirrors the Federal Reserve Bank of New York’s quarterly report on household debt and credit. The mortgage delinquency rate for one to four unit residential properties decreased slightly to 9.85% and the percentage of loans in foreclosure during the second quarter decreased by 1.1% from the previous quarter to 4.57%.
Loans at least one payment past due or in foreclosure totaled 13.97%, down slightly from 14.01% in the last quarter but up 1.14% from last year.
The number of homes in foreclosure decreased for the first time since 2006 and loans seriously delinquent at 90 days past due also decreased. The delinquency rates, although slightly improved, remain at historically high levels as consumers struggle to stay current with enormous amounts of debt, shrinking income and high unemployment.
The pertinent question is whether the slight improvement in delinquency rates is a mere statistical blip. MBA data on the increase in 30 day delinquencies suggest that high unemployment rates and first time claims for unemployment insurance could ultimately lead to increased foreclosure rates.
The disappointing news is that, after declining since the beginning of 2009, the rate of short-term delinquencies is going up and the increase in these short-term delinquencies may ultimately drive the foreclosure measures back up. The percent of loans one payment behind had peaked in the first quarter of 2009 at 3.77 percent and fell to 3.31 percent by the end of 2009. Unfortunately that rate has now risen to 3.51 percent. The causes are likely two-fold. First, 30-day delinquencies are very closely tied to first-time claims for unemployment insurance. The number of first-time claims fell through most of 2009 but leveled off in 2010 and have started to rise again. This increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years have become delinquent again because those borrowers, by definition, have weak credit.
Ultimately the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story. Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers. Until we see the increase in the number of households that comes with an increase in the number of paychecks, all measures of the health of the housing industry will continue to be weak.
The delinquency rate by loan type was 7.8% for VA loans, 13.75% for prime ARM loans, 5.98% for prime fixed loans, 25.2% for subprime fixed loans, 29.5% for subprime ARM loans and 13.3% for FHA loans.