Loan Modification

FHA foreclosure inventory level lower than prime

By Peter G. Miller

The Mortgage Bankers Association has come out with its quarterly analysis of delinquencies and foreclosures, an analysis which has a lot of good news.

The MBA says the delinquency rate for mortgage loans on one-to-four-unit residential properties has fallen to 9.13 percent of all loans outstanding at the end of the third quarter, a decrease of .51 percent 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 delinquency rate,” says the MBA, “decreased 81 basis points for prime loans (from 7.10 percent to 6.29 percent), 79 basis points for subprime loans (from 27.02 percent to 26.23 percent), 67 basis points for FHA loans (from 13.29 percent to 12.62 percent) and 35 basis points for VA loans (from 7.79 percent to 7.44 percent).”

Lower delinquency rates are good news because they suggest fewer foreclosures in the future. That said, relative to historic levels, delinquencies remain remarkably high and could climb further without an improvement in employment levels.

Foreclosures

Delinquencies are correctable lapses that can generally be undone. Foreclosures are different. When a home is foreclosed there’s little possibility for owners to get back their property — or for lenders to avoid a loss.

The big news concerns foreclosures.

First, foreclosure levels have begun to decline.

Second, the FHA loan foreclosure inventory rates are lower than foreclosure levels for prime financing.

The MBA reports that “the non-seasonally adjusted foreclosure inventory rate for all loans at the end of the third quarter of 2010 was 4.39 percent, 18 basis points lower than the second quarter of 2010 rate of 4.57 percent and eight basis points lower than the third quarter of 2009 rate of 4.47 percent.

“During the third quarter of 2010, the foreclosure inventory rate decreased three basis points for prime loans (from 3.49 percent to 3.46 percent) and 65 basis points for subprime loans (from 14.38 percent to 13.73 percent). FHA loans saw a 40 basis-point decrease in foreclosure inventory rate (from 3.62 percent to 3.22 percent), while the foreclosure inventory rate for VA loans decreased 36 basis points (from 2.50 percent to 2.14 percent). Compared with the third quarter of 2009, the foreclosure inventory rate increased 26 basis points for prime loans, while the foreclosure inventory rate decreased 162 basis points for subprime loans, 10 basis points for FHA loans and 15 basis points for VA loans.”

Notice that the FHA foreclosure inventory rate is now LOWER than the rate for prime loans, 3.22 percent versus 3.46 percent.

Foreclosure Starts

The story with foreclosure starts is a little different.

The non-seasonally adjusted foreclosure starts rate in the third quarter, says the MBA, was 1.34 percent, an increase of 23 basis points from the second quarter of 2010 rate of 1.11 percent.

“By loan type, the foreclosure starts rate increased 21 basis points for prime loans (from 0.91 percent to 1.12 percent), 48 basis points for subprime loans (from 2.83 percent to 3.31 percent), 22 basis points for FHA loans (from 1.02 percent to 1.24 percent) and 16 basis points for VA loans (from 0.70 percent to 0.86 percent).”

In effect, the foreclosure rates for prime mortgages (1.12 percent) and FHA loans (1.24 percent) are beginning to merge, something that could happen during the next quarter.

Full post as published by FHA Mortgage Guide on November 22, 2010 (boomark / email).