Loan Modification

FHA Foreclosure Rate On Par For Times

By Peter G. Miller

The Mortgage Bankers Association has come out with their quarterly delinquency and foreclosure statistics for the fourth quarter of 2009 and the results reflect exactly and precisely what we have been saying here: FHA mortgage foreclosure levels are consistent with the marketplace and not outsized, over-done or evidence of incompetence or malfeasance.

Specifically, the MBA had this to say:

First, the delinquency rate for all types of loans was 9.47 percent in the fourth quarter — that compares with 7.88 percent a year earlier.

Second, the overall foreclosure start rate was 1.20 percent — that’s up from 1.08 percent in the fourth quarter of 2009.

Now let’s break down the numbers:

In terms of delinquencies, the MBA reports that for the fourth quarter the delinquency rate for prime loans was 6.73 percent, 25.26 percent for subprime financing, 13.57 percent for FHA mortgages and 7.41 percent for VA financing.

The delinquency rate tells us that a lot of folks are in trouble. However, from a lending perspective, the more important question is how many delinquent loans actually resulted in a foreclosure action. In other words, how good are the efforts to “cure” delinquent loans.

Foreclosure Levels

During the fourth quarter of 2009, the foreclosure inventory rate for prime loans reached 3.31 percent, FHA mortgage foreclosures were at 3.57 percent, subprime borrowers were at 15.58 percent and those in the VA loan were at 2.46 percent.

None of these foreclosure levels are re-assuring, but the foreclosure rate for FHA loans and the prime rate financing are close — this is why you hear FHA mortgage critics screaming about the FHA delinquency rate but not about actual foreclosure levels.

“Compared with the fourth quarter of 2008, the foreclosure inventory rate increased 143 basis points for prime loans, 187 basis points for subprime loans, 114 basis points for FHA loans and 80 basis points for VA loans,” says the MBA.

Faster

In other words, prime-rate financing foreclosure levels are increasing FASTER than FHA foreclosure levels. Whoops, how embarrassing is that for FHA critics?

In terms of the foreclosure start rate, the mortgage bankers tell us that the overall rate was 1.20 percent in the fourth quarter. However, if we look at the four different loan categories tracked by the MBA then we see that the foreclosure start rate was .86 for prime loans, 3.66 percent for subprime financing, 1.28 percent for FHA mortgages and .87 percent for VA loans.

The foreclosure start rate was 1.20 percent in the fourth quarter but 1.42 percent in the third quarter of 2009, meaning that foreclosure levels declined in the last quarter. However, this is hardly a miracle because foreclosure actions should slow at the end of the year because of the holidays (Thanksgiving, Christmas and New Year’s) and because of voluntary foreclosure moratoriums that took place in many areas and with many lenders.

In the end, the foreclosure news is not good, not re-assuring and not evidence that our housing situation materially improved or even stayed the same in the fourth quarter. I wish it weren’t so.

Full post as published by FHA Mortgage Guide on February 23, 2010 (boomark / email).