Delinquencies fell to a seasonally adjusted rate of 9.47% of all loans outstanding as of the end of the fourth quarter of 2009 – down 17 basis points (bps) from the third quarter, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
The survey results were a mixed bag, according to the MBA's chief economist, Jay Brinkmann.
On the bright side, the 30-day delinquency rate fell 16 bps quarter-over-quarter, while the rate of foreclosure starts dropped 22 bps. The downside: Loans 90+ day delinquent and loans in foreclosure both reached new highs. At the end of 2009, about 4.58% of loans were in foreclosure, while 5.09% were at least 90+ days delinquent.
The decline in 30-day delinquencies was uncharacteristic for the season, during which borrowers often see their first big heating bills. Other seasonal factors, such as holiday expenditures, usually result in a jump in new delinquencies from the third to fourth quarter.
"The continued and sizable drop in the 30-day delinquency rate is a concrete sign that the end may be in sight," Brinkmann says.
"This drop is important because 30-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures," he adds. "With fewer new loans going bad, the pool of seriously delinquent loans and foreclosures will eventually begin to shrink once the rate at which these problems are resolved exceeds the rate at which new problems come in. It also gives us growing confidence that the size of the problem now is about as bad as it will get."
The declining rate of foreclosure starts may be temporary, the MBA points out, giving the building inventory in 90-day buckets.
"Despite the drop in short-term delinquencies, foreclosure rates could continue to climb, however, based on the ability of borrowers 90 days or more delinquent to solve their problems," Brinkmann says. "A sizable number of the loans in the 90+ day delinquent bucket are in loan modification programs. They are carried as delinquent until borrowers demonstrate they will make the payments agreed to in the plans."
The delinquency trends follow unemployment trends, Brinkmann adds, saying the decline in new unemployment insurance claim filings mirrors the decline in new delinquencies.
"Unemployment is now more and more concentrated in long-term unemployment" – i.e., scenarios where a person has been out of work for longer than six months – "and we see direct parallels between this long-term unemployment and long-term delinquency problems," Brinkmann says.
In the fourth quarter of 2009, prime fixed-rate loans represented 37.2% of the 90+ day delinquencies, whereas they represented only 26.3% of 90+ day delinquencies in the fourth quarter of 2009.
This increased share of long-term delinquencies is problematic, Brinkmann suggests, because prime, fixed-rate loans "tend to be the most difficult to modify." While subprime and adjustable-rate mortgage delinquencies are often tied to payment-related issues, the declining performance of prime fixed-rate loans is more often income-related or caused by changes in a household's structure (e.g., divorce).