MBA: Delinquencies Hit Record-Highs

The ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) released its ""Mortgage Delinquency Survey"":http://www.mortgagebankers.org/NewsandMedia/PressCenter/68008.htm for 2008 on Thursday, which showed that Americans fell behind on their mortgages and banks seized homes at a record pace in the fourth quarter of last year. MBA attributed the rising statistics to tumbling real estate values and unemployment numbers that reached a 15-year high at the end of 2008.
According to MBA, the delinquency rate for residential mortgages rose to 7.88 percent of all loans outstanding by the end of 2008. That delinquency rate is the highest on record, going back to the outset of the study in 1972. The third quarter to fourth quarter jump - from 6.99 percent to 7.88 percent - is also an all-time high. At the end of 2007, the delinquency rate was 5.82 percent.
The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure. MBA said that loans in foreclosure rose to 3.30 percent, also a record-setter. That figure is up from 2.97 percent in the third quarter.
The combined percent of loans in foreclosure and at least one payment past due was 11.18 percent on a seasonally adjusted basis and 11.93 percent on a non-seasonally adjusted basis. These figures mean that one in every eight U.S. households ended 2008 behind on their mortgage payments or in the foreclosure process.
The percentages of loans 60 days past due, loans 90 days or more past due, and loans in foreclosure all set new record highs, breaking records set last quarter, according to MBA's data. The percentage of loans on which foreclosure actions were started tied the record set in the first quarter of 2008. However, the percentage of loans 30 days past due is still well below the record set in the first quarter of 1985.
According to Jay Brinkmann, MBA's chief economist and SVP of research and economics, foreclosure inventory jumped sharply in the fourth quarter even though the rate at which loans were entering foreclosure remained unchanged. ""This is mainly attributable to various state and local moratoria on foreclosure sales, the Fannie Mae and Freddie Mac halt on foreclosure sales announced in late November, a general reluctance by servicers to proceed with evictions in the last few weeks of December, and a slowing down caused by an overburdened legal process in some areas,"" Brinkmann explained.
Brinkmann continued, ""The rate of new foreclosures has remained essentially flat for the last three quarters of 2008. This might be seen as a good sign for mortgage performance, but most other measures point to exactly the opposite conclusion.""
He explained that the percentage of loans at least 90 days past due jumped sharply, and while normally servicers would have initiated foreclosures on a significant portion of these loans, they have delayed doing so for a variety of reasons because of loan modification eligibility, compliance with investors' guidelines, and other delays based on locale. In addition, Brinkmann said, some servicers report that many borrowers are ""running their accounts 90 days delinquent"" in order to qualify for certain modifications.
Subprime ARM loans continued to dominate the delinquency numbers. Nationwide, MBA reported that 48 percent of subprime ARMs were at least one payment past due and in Florida over 60 percent of subprime ARMs were at least one payment past due.
Brinkmann said, however, that we can expect to see ""a shift away from delinquencies tied to the structure and underwriting quality of loans to mortgage delinquencies caused by job and income losses. For example, the 30-day delinquency rate for subprime ARMs continues to fall and is at its lowest point since the first quarter of 2007. Absent a sudden increase in short-term rates, this trend should continue because the last 2-28 subprime ARMs (fixed payment for two years and adjustable for the next 28 years) were written in the first half of 2007. The problem with initial resets is largely behind us, although the impact of the resets was generally overstated.""
Already, Brinkmann said, we are witnessing delinquency rates climb across the board for prime fixed-rate and subprime fixed-rate loans, loans whose performance is driven by the loss of jobs or income rather than changes in payments.
On a regional basis, Brinkmann said, ""While California, Florida, Nevada, Arizona, and Michigan continue to dominate the delinquency numbers, some of the sharpest increases we saw last quarter in loans 90 days or more delinquent were in Louisiana, New York, Georgia, Texas, and Mississippi, signs of the spreading impact of the recession.""