Delinquency and Foreclosure Rates Decline to Lowest Level in Six Years

The 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 sevenbasis 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,” said 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 said, 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.

Change from last quarter (third quarter of 2013)

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types, except for subprime fixed loans, subprime ARM loans and FHA loans. The seasonally adjusted delinquency rate decreased 12 basis points to 3.23 percent for prime fixed loans and 53 basis points to 5.44 percent for prime ARM loans. For subprime loans, the delinquency rate increased 32 basis points to 19.52 percent for subprime fixed loans and 87 basis points to 22.33 percent for subprime ARM loans. The delinquency rates for VA loans fell by 12 basis points to 5.29 percent and the FHA delinquency rate rose by 41 basis points to 10.47 percent.

The non-seasonally adjusted percentage of loans in foreclosure, also known as the foreclosure inventory rate, decreased from 3.08 percent last quarter to 2.86 percent. The foreclosure inventory rate for prime fixed loans decreased 16 basis points to 1.56 percent, and the rate for prime ARM loans decreased 69 basis points from last quarter to 3.85 percent. For subprime loans, the rate for subprime fixed loans decreased 71 basis points to 8.28 percent and the rate for subprime ARM loans decreased 97 basis points to 15.48 percent. The foreclosure inventory rate for FHA loans decreased nine basis points to 3.27 percent, while the rate for VA loans decreased three basis points to 1.78 percent.

The non-seasonally adjusted foreclosure starts rate decreased three basis points for prime fixed loans to 0.30 percent, one basis point for prime ARM loans to 0.59 percent, 39 basis points for subprime fixed to 1.47 percent, 100 basis points for subprime ARM loans to 1.91 percent, two basis points for FHA loans to 0.75 percent, and increased three basis points for VA loans to 0.47 percent.

Change from last year (fourth quarter of 2012)

Given the challenges in interpreting the true seasonal effects in these data when comparing quarter to quarter changes, it is important to highlight the year over year changes of the non-seasonally adjusted results.

Compared with the fourth quarter of 2012, the foreclosure inventory rate decreased 54 basis points for prime fixed loans, 283 basis points for prime ARM loans, 100 basis points for subprime fixed, 276 basis points for subprime ARM loans, 58 basis points for FHA loans, and 30 basis points for VA loans. Over the past year, the non-seasonally adjusted foreclosure starts rate decreased eight basis points for prime fixed loans, 38 basis points for prime ARM loans, 35 basis points for subprime fixed, 95 basis points for subprime ARM loans, 11 basis points for FHA loans, and two basis points for VA loans.

As a result of the large volume of servicing transfers, there may be volatility in the results from quarter to quarter for particular loan types as servicers reclassify loans. MBA actively tracks these transfers to maintain the best and most consistent sample coverage possible.