Mortgage Delinquency and Foreclosures are Up in the 3rd Quarter

The bad news concerning the housing market in the US continues to get worse. Now, with increasing unemployment the mortgage markets are only going to get weaker. When will the pain end? Text in bold is my emphasis. From Market Watch:

The percentage of U.S. mortgage holders who were behind in their payments soared to a record 6.99% of loans outstanding in the third quarter, the Mortgage Bankers Association said Friday, and the number of mortgages somewhere in the foreclosure process was also at a new high.

But the number of mortgages on which foreclosure proceedings was started actually fell slightly during the third quarter compared with the second quarter, according to the Mortgage Bankers Association's quarterly delinquency survey. That doesn't necessarily indicate a slowdown in foreclosures, said Jay Brinkmann, MBA's chief economist.

"An initial look at the number of foreclosure starts would seem to indicate at least a leveling off of foreclosures. These numbers, however, are being influenced by several factors including various moratoria on foreclosure filings and by mortgage companies holding loans in the 90-plus-day bucket during the modification and workout process," said Jay Brinkmann, MBA's chief economist, in a news release.

"Evidence of this can be seen in the large increase in loans 90 days or more past due but not yet in foreclosure. This rate jumped by 45 basis points, the highest increase in this category ever recorded in the MBA survey and far above the average 4 basis point jump we would expect to see." (90+ delinquent mortages are classified as non-performing assets. However, the banks may not be able to move the mortgages along because they cannot afford the losses they will have to take when the properties go through the foreclosure process.)

Mortgages entering the foreclosure process fell to 1.07%, from 1.08% in the second quarter but were up from 0.78% a year ago. The delinquency rate for mortgage loans on one- to four-unit properties was a seasonally adjusted 6.99% of all loans outstanding at the end of the third quarter. That's up from 6.41% at the end of the second quarter and 5.59% a year ago, according to the survey. (That is up 25% from this same time last year.)

"There are some good reasons, in a sense, why that number might go up," Brinkmann said, during a phone interview. As mortgage lenders and servicers try and work with borrowers, constructing repayment plans and modifying loan terms, those borrowers will remain classified as delinquent until they can show they can make payments on time, he said.

The percentage of loans somewhere in the foreclosure process also rose in the third quarter to 2.97%, up from 2.75% in the second quarter and 1.69% a year ago. (That is up 76% from this time last year.)

Subprime mortgages continued to perform poorly, with more than 19.5% of those loans seriously delinquent in the third quarter, meaning homeowners were more than 30 days past due on payments.

Both prime and subprime adjustable-rate mortgages continue to have the highest share of foreclosures, Brinkmann said. And California and Florida continue to drive national numbers on foreclosure starts: "California and Florida have about 54% and 41% of the prime and subprime ARM foreclosure starts respectively," he said.

The MBA's national delinquency survey covers about 45 million loans on one- to four- unit residential properties, representing between 80% and 85% of all "first-lien" residential mortgage loans outstanding in the United States. The loans surveyed were reported by about 120 lenders, including mortgage bankers, commercial banks and thrifts. Read about how mortgage rates tumbled this week.

In past quarters, main reasons that California and Florida had some of the highest foreclosure starts had to do with a combination of too many houses built, speculation and weak underwriting, he said. Those states still have the highest shares of foreclosure starts, but now people are also falling behind because of job losses.

"Economic fundamentals are now deteriorating in California and Florida. Over the past year, Florida led the nation in job losses at 156,200, with California losing 101,300, as compared with Michigan job losses at 71,200 and Ohio at 17,300," he said in the release.

The job losses make it more difficult to anticipate when foreclosure problems will ease. Foreclosure starts are on pace to end up at 2.2 million for 2008, Brinkmann said. Without a recession next year, his expectation was that the numbers would start to fall. More than half a million jobs lost in U.S. in November as layoffs mount.

"We can pretty much throw that out the window right now," he said, during a call with reporters. He expects to see a growing delinquency problem among prime mortgages in the quarters ahead, driven by job losses.

In the third quarter, the delinquency rate for mortgages 30 days or less past due was still below levels seen in 2002, Brinkmann said. But loans that are in that delinquency category are more likely to end in foreclosure these days, he said. Government lays plans to aid troubled mortgage holders.

In the past, 12% to 15% of mortgages that were 30 days or less overdue in one quarter ended up in foreclosure the next quarter, he said. In 2007 and 2008, 30% of those loans ended up in foreclosure the following quarter. And in California, 75% of loans overdue by a month or less are ending up in foreclosure the next quarter, Brinkmann said.