By Mark Huffman
ConsumerAffairs.com
May 20, 2010
Despite recent optimism about improvement in the housing market -- seen as key to a full economic recovery -- nagging worries remain. A good example is the latest report on loan delinquencies from the Mortgage Bankers Association.
In its report on the first quarter of 2010, the MBA said the delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 10.06 percent.
The percentage of loans on which foreclosure actions were started during the first quarter was 1.23 percent, up three basis points from last quarter but down 14 basis points from one year ago.
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 first quarter was 4.63 percent, an increase of five basis points from the fourth quarter of 2009 and 78 basis points from one year ago. This represents another record high.
The combined percentage of loans in foreclosure or at least one payment past due was 14.01 percent on a non-seasonally adjusted basis, a decline from 15.02 percent last quarter.
There was, however, a hint of improvement when it comes to those who are seriously behind on their house payments. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 9.54 percent, a decrease of 13 basis points from last quarter, but an increase of 230 basis points from the first quarter of last year.
Caution regarding seasonally adjusted numbers
"The issue this quarter is that the seasonally adjusted delinquency rates went up while the unadjusted rates went down," said Jay Brinkmann, MBA's chief economist. "Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter and we saw that first quarter drop in the data. The question is whether the drop represents anything more than a normal seasonal decline or a more fundamental improvement. Most importantly, the normal seasonal drop is coming right at the point where we believe delinquencies could potentially be declining and the problem for the statistical models is determining which is which."
Brinkmann says the seasonal models suggest it is not a fundamental improvement and that the seasonal drop should have been larger to represent a true improvement. Yet, he says, there is reason to believe the seasonally adjusted numbers could be too high.
"Simply put, fundamental market factors may be having a greater influence on the delinquency rates than is normally the case, but mathematical models have difficulty discerning the difference over a short period of time," he said.
So it's hard to tell if the situation is getting better or getting worse.
Continuation of trends seen last quarter
Overall, the first quarter report showed a continuation of the pattern of declines in short-term delinquency rates, at least on a non-seasonally adjusted basis, the continued historically high share of delinquencies that are 90 days or more past due, and a leveling off in the pace of foreclosures.
"The economy has begun to generate jobs and layoffs have declined, although new claims for unemployment insurance remained higher in the first quarter than we expected," Brinkmann said. "The percent of loans behind one payment had been declining as first-time claims for unemployment began falling in March 2009. Those new claims stopped falling during the first quarter of this year, which likely halted the decline in the underlying 30-day delinquency rate. If mortgage delinquencies are not yet clearly improving, it also appears they are not getting worse. However, a bad situation that is not getting worse is still bad."
For several years, the four states of Florida, Arizona, Nevada, and California have dominated the national delinquency and foreclosure numbers. Florida is still getting worse, but California is showing signs of improvement, according to the report. But the problem could be migrating. Washington, Maryland, Oregon, and Georgia showed the greatest overall increases in foreclosures started compared to last quarter.
