Mortgage Delinquencies Up, but Foreclosures Down

August 23, 2011

As the country’s unemployment rate continues to rise, new data reports that more homeowners are falling behind on paying their mortgages.

The same data, however, shows homes entering the foreclosure process at the lowest rate in four years.

According to the Mortgage Bankers Association‘s (MBA) National Delinquency Survey, the delinquency rate for mortgages on one-to-four unit residential properties reached a seasonally adjusted rate of 8.44 percent at the end of the second quarter.

That’s up from 8.32 percent in the first quarter; but it’s also way down from the second quarter of 2010, when the rate hit 9.85 percent.

In a normal market, the delinquency rate should be around 1.1 percent.

And, in a normal market, the unemployment rate, which started the quarter at 8.8 percent, shouldn’t climb to 9.2 percent within three months, either.

“Mortgage loans that are one payment, or 30 days, past due are very much driven by changes in the labor market, and the increase in these delinquencies clearly reflects the deterioration we saw in the labor market during the second quarter,” said Jay Brinkmann, chief economist of the MBA.

But not all is bleak. The percentage of mortgages entering foreclosure during the second quarter was 0.96 quarter, the lowest level since the fourth quarter of 2007. Foreclosure inventories also fell to the lowest level since the end of last year.

The percentage of mortgages in the foreclosure process at the end of the second quarter was 4.43 percent; down from 4.52 percent in the first quarter and 4.57 percent in the second quarter of 2010.

“While some have argued that this drop in foreclosures is a temporary drop which does not reflect the problems yet to come, this does not appear to be the case, at least at the national level,” said Brinkmann. “The percentage of loans 90 days or more past due continues to fall along with the foreclosure rate, and is at the lowest point since the beginning of 2009. Were there a growing backlog, we would expect to see the 90-plus day delinquent category increasing.”

Brinkmann said just five states accounted for 52 percent of the foreclosure inventory in the second quarter.

Illinois is one of those states with 7 percent of all mortgages in foreclosure. But it seems to be a legal issue that’s keeping our numbers up.

“The single biggest factor determining whether or not a state has a large backlog of foreclosures is whether the state has a judicial foreclosure system, meaning whether or not a foreclosure needs to go through the courts. Of the 9 states whose percentage of loans in foreclosure is higher than the national average, only one, Nevada, does not have a judicial system of foreclosure.

“Therefore, as we work toward resolving the foreclosure overhang in the housing market, we should be careful to distinguish between the economic impediments to resolution and the legal impediments to resolution.”

Categories: Economy, Mortgages

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