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Delinquencies Drop as Bad Boom Loans Fade Away

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By Steve Cook

Fewer new problem loans, declining levels of negative equity and shrinking inventories of bad loans from the boom era have helped to reduce mortgage delinquencies by the largest year-to-date decline since 2002.

The May Mortgage Monitor report from Lender Processing Services found that the national delinquency rate continued to fall in May, Delinquencies are down more than 15 percent since the end of December 2012, coming in at 6.08 percent for the month.

As LPS Applied Analytics Senior Vice President Herb Blecher explains, much of this improvement is supported by the fact that new problem loan rates are approaching the pre-crisis average. “Though they are still approximately 1.4 times what they were, on average, during the 1995 to 2005 period, delinquencies have come down significantly from their January 2010 peak,” Blecher says. “In large part, this is due to the continuing decline in new problem loans — as fewer problem loans are coming into the system, the existing inventories are working their way through the pipeline. New problem loan rates are now at just 0.73 percent, which is right about on par with the annual averages during 2005 and 2006, and extremely close to the 0.55 percent average for the 2000-2004 period preceding.

“As we’ve noted before,” Blecher continues, “negative equity appears to still be one of the strongest drivers of new problem loans, and — primarily buoyed by home price increases nationwide — that situation also continues to improve. We looked once again at the number of ‘underwater’ loans in the U.S., and found that the total share of mortgages with LTVs of greater than 100 percent had declined to just 7.3 million loans as of the end of the first quarter of 2013. This accounts for less than 15 percent of all currently active loans and represents a nearly 50 percent year-over-year decline.”

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