–Foreclosre Moratorium Likely To Mean Spike In Fclsr Invent Q4, Q1’2011

By Brai Odion-Esene

WASHINGTON (MNI) – Delinquency rates in the United States will only
see “modest improvement,” due to the expectation that the unemployment
rate will remain at a high level well into 2011, an official from the
Mortgage Bankers Association said Thursday.

He also said that the temporary moratorium on foreclosures put in
place by some mortgage servicers will simply mean more foreclosed homes
will come on the market in the medium term, likely in the fourth quarter
of 2010 or the first of 2011.

Speaking to reporters following the release of its third quarter
National Delinquency Survey, Michael Fratantoni, the MBA’s vice
president of Research and Economics, noted that despite a relatively
positive October employment report, the labor market has only seen
marginal improvement through the third quarter.

“So while there was a small improvement in the delinquency rate,
the level of that rate remains quite high,” he said.

“As we anticipate that the unemployment rate will be little changed
over the next year, we also expect only modest improvements in the
delinquency rate.”

According to the NDS report, the delinquency rate for mortgage
loans on one-to-four unit residential properties decreased to a
seasonally adjusted rate of 9.13% of all loans outstanding as of the end
of the third quarter of 2010. This is a decrease of 72 basis points from
9.85% in the second quarter of 2010, and a decreased 51 basis points
from 9.64% at the end of the third quarter of 2009.

The MBA said the third-quarter decrease in overall seasonally
adjusted delinquencies was comprised of decreases in delinquencies for
all loan types except subprime ARM loans. The delinquency rate decreased
81 basis points for prime loans (from 7.10% to 6.29%), 79 basis points
for subprime loans (from 27.02% to 26.23%), 67 basis points for FHA
loans (from 13.29% to 12.62%) and 35 basis points for VA loans (from
7.79% to 7.44%).

On a year-over-year basis, the report said, the seasonally adjusted
delinquency rate decreased 55 basis points for prime loans, 19 basis
points for subprime loans, 174 basis points for FHA loans and 64 basis
points for VA loans.

“Mortgage delinquency rates declined over the quarter and over the
past year, due primarily to a large decline in the 90+ day delinquency
rate,” Fratantoni said. “The number of loans in foreclosure also
dropped, bringing the serious delinquency rate to its lowest level since
the second quarter of 2009.”

The seriously delinquent rate, the non-seasonally adjusted
percentage of loans that are 90 days or more delinquent, or in the
process of foreclosure, decreased 41 basis points to 8.70% from 9.11%.
On a year-over-year basis, the seriously delinquent rate decreased 15
basis points from 8.85%.

On a year-over-year basis, the seriously delinquent rate increased
17 basis points for prime loans. The rate decreased 103 basis points for
subprime loans, 42 basis points for FHA loans and 23 basis points for VA
loans.

According to the MBA, for adjustable-rate mortgage loans, seriously
delinquent rates in the third quarter remained unchanged for prime ARM
loans (17.77%) and decreased 36 basis points for subprime ARM loans
(40.53% to 40.17%). “Since the third quarter of 2009, the seriously
delinquent rate increased 105 basis points for prime ARM loans and
decreased 63 basis points for subprime ARM loans,” the MBA said.

For fixed-rate mortgage loans, the seriously delinquent rate for
prime fixed loans decreased from 4.91% to 4.67% and fell for subprime
fixed loans from 20.61% to 20.34% compared with the second quarter of
2010. Versus the third quarter of 2009, the seriously delinquent rate
increased 38 basis points for prime fixed loans and 63 basis points for
subprime fixed loans.

The non-seasonally adjusted foreclosure starts rate, the percentage
of loans that entered the foreclosure process during the quarter, was
1.34% in the third quarter, an increase of 23 basis points from the
second quarter rate of 1.11%.

The non-seasonally adjusted foreclosure inventory percentage, the
percentage of loans that are in the foreclosure process as of the end of
the quarter, decreased 18 basis points to 4.39% from 4.57%.

Based on foreclosure inventory, the states with the highest rates
were Florida (13.68%), Nevada (9.72%) and New Jersey (6.73%). Based on
foreclosure starts, the three states with the highest rates were Nevada
(3.17%), Arizona (2.44%) and Florida (2.32%).

Commenting on the ongoing foreclosure controversy, Fratantoni said
“the foreclosure paperwork issues announced by several large servicers
in late September and early October are unlikely to have had a large
impact on the third quarter numbers, but may well increase the
foreclosure inventory numbers in the fourth quarter of 2010 and in early
2011.”

He said those servicers that temporarily halted foreclosure sales
may show higher foreclosure inventory numbers in the fourth quarter of
this year and in early 2011 than would otherwise have been the case.

And while any drop in foreclosure sales over the next few quarters
may actually reduce the inventory of homes on the market, “these
foreclosed homes are likely to come on the market in the medium term, so
it is only a delay rather than a change in the underlying economics,”
Fratantoni concluded.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$AG$,M$U$$$,M$$CR$,MAUDS$]