Seriously Delinquent U.S. Mortgages Fall to Four-Year Low

Seriously delinquent U.S. mortgages fell to the lowest level since 2008 as employment improved and recovering housing demand enabled struggling borrowers to sell without losing money.

Home loans that were 90 days or more behind or in the foreclosure process fell to 6.78 percent of mortgages in the fourth quarter from 7.03 percent in the previous three months, the Mortgage Bankers Association said in a report today. The rate was 7.73 percent a year earlier.

Delinquent borrowers are catching up on payments or finding alternatives to foreclosure as the U.S. economy improves, easing a threat to the housing recovery. The unemployment rate was 7.9 percent in January, the fifth straight month below 8 percent. A tight supply of homes on the market is driving up prices and helping struggling owners find buyers.

“There’s definite movement in the right direction,” Michael Fratantoni, the trade group’s vice president of research and economics, said in a phone interview from Dallas. “We’re not back to normal yet, regardless of how you define that.”

Foreclosure starts fell to 0.7 percent of all loans during the quarter, half of what they were at the peak of the crisis in 2009. A “normal rate” before foreclosures swelled was about 0.5 percent, Fratantoni said.

The share of mortgages in foreclosure fell to 3.74 percent from 4.07 percent the previous quarter, the biggest drop in the association’s records.

Rising Prices

The median price of a home sold in January rose 12 percent to $173,600, the biggest year-over-year gain since November 2005, the National Association of Realtors reported today. Sales increased 0.4 percent from the prior month. Distressed sales accounted for 23 percent of the total, down from 35 percent a year ago.

“Together, the fall in foreclosure starts and the foreclosure inventory and the rise in the number of non-distressed home sales are encouraging signs of a housing market returning to health,” Paul Diggle, property economist with Capital Economics Ltd. in London, wrote in a note to clients.

Rising prices helped 1.9 million underwater U.S. homeowners -- people who owe more on their mortgage than their homes are worth -- get back to positive territory, according to a report today by Zillow Inc. Almost 1 million more owners will return to positive equity this year as home prices rise, the Seattle-based real estate sales service said.

Foreclosure Alternative

Higher prices provide homeowners struggling to pay their mortgage an alternative to foreclosure, said Jay Brinkmann, chief economist of the Mortgage Bankers Association.

“Chances are, as home prices go up, they can simply sell,” Brinkmann said in a telephone interview.

Even with rising prices, an estimated 13.8 million homeowners with a mortgage owed a collective $1 trillion more than their homes were worth at the end of 2012, Zillow said.

The broad U.S. mortgage delinquency rate -- the share of mortgages at least one month late -- dropped to 7.09 percent in the fourth quarter on a seasonally adjusted basis from 7.4 percent in the previous three months, the Mortgage Bankers Association said.

Many homes with the worst quality loans and borrowers already have been sold or lost to foreclosure, lowering the rate of new delinquencies, according to Brian Lancaster, co-head of structured transactions analytics risk and strategy at RBS Securities Inc. in Stamford, Connecticut.

Loan ‘Burnout’

“While declining delinquencies and foreclosures are definitely helped by stronger housing and job markets, more cynically they are also the result of what we in the residential securities business call ‘burnout,’” Lancaster said in an e-mail.

New York, New Jersey and Connecticut had increases in total past-due rates during the quarter, as more homeowners fell behind after Superstorm Sandy struck the region Oct. 29, Brinkmann said.

Foreclosures take longer to process in those three states, which require judicial review, delaying the recovery compared with states such as Arizona and California that have a speedier non-judicial process, Fratantoni said.

“The crisis persisted about three years longer in judicial states,” he said.

Florida, a judicial state, had the highest rate of seriously delinquent loans, with 15.9 percent of mortgages at least 90 days late or in foreclosure. New Jersey was next at 13.2 percent, followed by 11.3 percent in Nevada, 9.83 percent in New York and 9.52 percent in Illinois.

(Corrects time period in second paragraph of story published Feb. 21.)
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