Threat of Shadow Inventory Fades as Delinquencies, Foreclosures Decline
By: Esther Cho
The percent of loans in foreclosure, or the foreclosure inventory rate, fell to the lowest level since the first quarter of 2009, according to the latest delinquency survey from the Mortgage Bankers Association (MBA).
On a non-seasonally adjusted basis, the foreclosure inventory rate in the third quarter was 4.07 percent, down 20 basis points from last quarter and 36 basis points from a year ago. MBA reported the quarterly decrease was the largest since the survey’s history.
“The level however, is still roughly four times the long-run average for this series as we continue to see back logs of loans in the foreclosure process in states with a judicial foreclosure system,” said Mike Fratantoni, MBA’s VP of research and economics, in a release.
MBA noted five states alone accounted for 51.7 percent of the nation’s share of foreclosure inventory: Florida (23.4 percent), California (8.3 percent), New York (7.2 percent), Illinois (6.5 percent) and New Jersey (6.3 percent).
On a seasonally adjusted basis, the national delinquency rate stood at 7.40 percent in the third quarter, according to the survey. The decrease is a quarterly and yearly decline of 18 and 59 basis points, respectively.
The non-seasonally adjusted rate, however, increased quarterly by 29 basis points to 7.64 percent. The MBA explained the a typical seasonal pattern is for the rate to increase from the second to third quarter.
The delinquency rate includes loans that are at least 30 days or more past due but not in foreclosure and covers mortgages on one-to-four-unit residential properties.
The delinquency rate for loans that are 90 days or more past due was 2.96 percent, a drop of 23 basis points from the second quarter and 54 basis points from last year.
Fratantoni explained the decline in mortgage delinquencies was helped by a decline in 90-plus delinquencies.
“The 90 day delinquency rate is at its lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market,” Fratantoni stated.
The rate for 30-day delinquencies increased to 3.25 percent, rising quarterly and yearly by 7 and 6 basis points.
“The 30 day delinquency rate increased slightly, but remains close to the long-term average for this metric. Given the weak economic and job growth in third quarter, it is not surprising that this metric has not improved,” he added.
The serious delinquency rate, which includes loans 90 days or more past due or in the process of foreclosure, declined yearly by 86 basis points to 7.03 percent.
On a non-seasonally adjusted basis, the percentage of loans that began the foreclosure process in the third quarter also fell, dropping 18 basis points from last year to 0.90 percent. Quarter-over-quarter, the rate was down by 6 basis points.
“The improvement in total delinquency rates was accompanied by a further drop in the foreclosure starts rate, which hit its lowest level since 2007,” Fratantoni noted.
In a commentary, Capital Economics also suggested the data points to a decline in shadow inventory.
“Admittedly, we estimate that there are still a very high 3.8m homes which are waiting in the wings to join the visible supply. But this is down from a peak of 5.1m. In other words, the threat to the housing recovery from the shadow inventory is fading into the background,” the research firm stated.
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