Loan Modification

FHA foreclosure trends show improvement

By Peter G. Miller

The latest numbers from the Mortgage Bankers Association show a substantial improvement in FHA loan quality with both foreclosures and delinquencies down significantly.

For the fourth quarter overall, the MBA says that seasonally adjusted delinquencies went from 9.13 percent to 8.22 percent.

___The delinquency rate decreased from 6.29 percent to 5.48 percent for prime loans.

__ The delinquency rate for subprime loans fell from 26.23 percent to 23.01 percent.

___ FHA mortgage delinquency levels dropped from from 12.62 percent to 12.26 percent.

___ The VA delinquency rate decreased from 7.44 percent to 6.67 percent.

Foreclosures

News on the foreclosure front is mixed.

The MBA reports that non-seasonally adjusted foreclosure start in the fourth quarter stood at 1.27 percent, down from 1.36 percent.

___ Prime loans saw the foreclosure start rate fall from 1.12 percent to 1.05 percent.

___ Subprime loans continue to be troubled with the foreclosure start rate increasing from 3.31 percent to 3.36 percent.

___ FHA loans showed the most improvement, with the FHA foreclosure start rate falling from 1.24 percent to 1.02 percent.

___ VA loans saw an increase in foreclosure starts with rates going from 0.86 percent to 0.88 percent.

“While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner, says Jay Brinkmann, MBA’s chief economist. “Despite continued high levels of unemployment, the economy did add over 1.2 million private sector jobs during 2010 and, after remaining stubbornly high during the first half of 2010, first time claims for unemployment insurance fell during the second half of the year. Absent a significant economic reversal, the delinquency picture should continue to improve during 2011.”

Maybe Not

No doubt the numbers reported by the MBA are statisically correct, however there is a need for context.

One would expect all foreclosure rates to decline substantially because the fourth quarter saw the first widespread emergence of the robo-signing scandal. The result of mortgage affidavits which were not properly signed has been that the foreclosure process has slowed in many states. It’s not that fewer homes are being foreclosed, merely that foreclosures are being delayed and will show up this year.

Mike Fratantoni, MBA’s vice president for single family research said “while the foreclosure starts rate fell during the fourth quarter, the percentage of loans in foreclosure rose to equal the all-time high. The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale. As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October. These issues caused a temporary halt in foreclosure sales, particularly in states with judicial foreclosure regimes, such as New Jersey, Florida, and Illinois. With fewer loans exiting the foreclosure process through sales, the foreclosure inventory rate naturally increased, even as fewer foreclosure starts meant that fewer loans entered the foreclosure process in the fourth quarter.”

Full post as published by FHA Mortgage Guide on February 20, 2011 (boomark / email).