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Delinquency and Foreclosure Rates Decline to Lowest Level in Six Years

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mortgage_payment_house_objectThe delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.39 percent of all loans outstanding at the end of the fourth quarter of 2013, the lowest level since the first quarter of 2008. The delinquency rate decreased two basis points from the previous quarter, and 70 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 2.86 percent, down 22 basis points from the third quarter and 88 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since 2008.

The non-seasonally adjusted percentage of loans on which foreclosure actions were started during the fourth quarter decreased to 0.54 percent from 0.61 percent, a decrease of seven basis points, and the lowest level since 2006.

The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 5.41 percent, a decrease of 24 basis points from last quarter, and a decrease of 137 basis points from the fourth quarter of last year.

“We continue to see substantial improvement in both delinquency and foreclosure rates, with most measures now back to pre-crisis levels,” says Michael Fratantoni, MBA’s Chief Economist and Senior Vice President of Research and Industry Technology.

“The delinquency rate, at 6.39 percent, is more than 3 percentage points lower than its peak of over 10 percent in 2010 and is edging closer to the historical average of around 5 percent. The percentage of loans in foreclosure has fallen for the seventh consecutive quarter, decreasing to 2.86 percent, the lowest level in six years. The percentage of new foreclosures started, at 0.54 percent, is the lowest in eight years and is back within its typical historical range.

“There was broad improvement in foreclosure rates in the fourth quarter, with 49 states and the District of Columbia recording a decrease. Florida still leads the nation in the percentage of loans in foreclosure, but that percentage has fallen to 8.56 percent from a peak of 14.5 percent. New Jersey and New York had the next two highest rates but both states did see a drop from the previous quarter. States with judicial foreclosure systems still account for most of the loans in foreclosure. Of the 17 states that had a higher foreclosure inventory rate than the national average, 15 were judicial states. While the percentage of loans in foreclosure dropped in both judicial and nonjudicial states, the average rate for judicial states was 4.92 percent compared to the average rate of 1.52 percent for nonjudicial states. That being says, for judicial states this was still a significant improvement from the rate of 6.88 percent recorded in 2012.

“In terms of new foreclosures started, about one fifth of all states saw an increase, but as we have pointed out previously, quarterly movements in this measure have often been the result of changing state laws and the timing associated with these changes and implementation. This has usually resulted in quarterly swings in the foreclosure start rate, sometimes with an offsetting change in the 90 day or more delinquency category, as the foreclosure process is started and stopped.

“The total past due rate for FHA loans increased over the quarter by 41 basis points, but is still down 70 points relative to last year at this time. The increase for the quarter was driven by a 37 basis point increase in loans one payment past due. The foreclosure measures for FHA loans declined both over the quarter and relative to last year.

“Loan cohorts from 2009 and earlier continue to make up more than 90 percent of seriously delinquent loans. Loans originated in 2007 and earlier accounted for 75 percent of the seriously delinquent loans, while loans originated in 2008 and 2009 accounted for another 16 percent. This is important to note because current home prices, while still rising, are about 9 percent below the peak in 2007. Therefore, borrowers with loans originated in 2007 will be more vulnerable to traditional delinquency and foreclosure trigger events such as a divorce, job loss, health issue, or death in the household.

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