9% of Mortgages Delinquent or in Forclosure, Says MBA

Chew on that for a second. Jay Brinkmann of the Mortgage Banker's Associations said that nearly 9 out of 100 mortgages are either in default or in the foreclosure process. That is an alarming number. Florida and California make up nearly 40% of that number.

From Marketwatch:

By Amy Hoak

CHICAGO (MarketWatch) -- The rate of mortgages entering foreclosure hit another record high in the second quarter, as did the percentage of loans somewhere in the foreclosure process, the Mortgage Bankers Association reported on Friday.
The delinquency rate, a measure of mortgages with at least one overdue payment but aren't in foreclosure, also was the highest ever recorded in the 39-year history of the MBA's quarterly survey.

States hit hard by the foreclosure crisis continue to drive the national numbers, said Jay Brinkmann, MBA's chief economist and senior vice president for research and economics. Increases in foreclosures seen in California and Florida overshadow improvements seen in states including Texas, Massachusetts and Maryland, he said.
Only eight states -- Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio -- had rates of foreclosure starts that were above the national average, Brinkmann said in a telephone interview. That "is an indicator that this is not equally distributed across the country," he said.

California and Florida alone accounted for 39% of all of the foreclosures started nationally during the second quarter. Together, the two states made up 73% of the increase in foreclosures between the first and second quarters, according to the MBA.
"The worst states are getting worse," Brinkmann said, noting that overbuilding occurred in California and Florida, and their numbers will continue to drive the national ones. Those states, he added, also are the two with the most mortgage loans outstanding.

Brinkmann said he hasn't investigated why states like Massachusetts, for example, showed marked improvement. But what's happening there might indicate how markets without massive overbuilding problems might recover in the months ahead, he said.

A look at the numbers

Altogether, more than 9% of mortgage loans are either delinquent or somewhere in the foreclosure process, Brinkmann said.

The percentage of loans that went into foreclosure in the second quarter was 1.08%, up from 1.01% in the first quarter and 0.59% a year ago. Meanwhile, 2.75% of loans in the survey were somewhere in the foreclosure process, up from 2.47% last quarter and 1.4% in the second quarter of 2007.

The delinquency rate was 6.41% of all loans outstanding, according to the survey. The rate was 6.35% in the first quarter, and 5.12% a year ago.

But Brinkmann pointed out that the overall delinquency rate was driven by loans that were 90 days or more past due -- and by those that were in California and Florida. The 30-day delinquency rate was below levels seen in 2002, he said.

The delinquency breakdown supports the argument that the foreclosures are being driven by housing fundamentals as opposed to economic issues such as job losses, he said. Drops in home prices seem to be driving the transition between a loan that is delinquent and one that goes into the foreclosure process.

The survey covers 45 million loans on one- to four- unit residential properties, representing between 80 to 85% of all first-lien residential mortgage loans outstanding in the country. Loans in the survey were reported by about 120 lenders.
Certain loan types also are driving rates, Brinkmann said.

"Subprime ARM loans accounted for 36% of all foreclosures started and prime ARMs, which include option ARMs, represented 23%," he said in a news release. "However, the increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans," he added.

In future quarters, foreclosure start numbers will probably be increasingly dominated by problems with prime ARMs, he said. That's due partly to the difficultly some borrowers are having with prime, option ARMs.

Where's the bottom?

Many wonder when foreclosures will hit a bottom, but Brinkmann called the idea of a national bottom "meaningless."

"Real estate markets are local, and some markets are already improving," he said.

"For example, even Michigan, one of the worst hit markets in the country, has now gone three quarters with little to no increase in its rate of foreclosures. Likewise, Massachusetts showed a very large drop in foreclosure starts, perhaps signaling a bottom.

"Because of the sheer size of California and Florida, an improvement in the national numbers, whether delinquencies, home prices or any other measure, is unlikely until we see some turnaround in those two states," Brinkmann said. End of Story

Amy Hoak is a MarketWatch reporter based in Chicago.

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