For a fifth subsequent quarter, the level of residential loan delinquencies continued to drop. According to the Mortgage Bankers Association, the current 6% level is the lowest since 2007 and it derives from the ongoing shrinkage of subprime loan portfolios.
The National Delinquency Survey conducted by the MBA for the second quarter of 2014 illustrates the delinquency rate of loans on one-to-four unit residential properties. The analysis includes mortgages that have at least one payment past due, but have not yet entered foreclosure. The rate decreased 92 basis points from 2013 and seven basis points from the first quarter of 2014.
For subprime adjustable-rate mortgages, quarter-to-quarter improvements were driven by a 142-basis-point decline in the delinquency rate to 20.2%. For fixed-rate subprime loans, the second quarter brought a 14-basis-point decline to roughly 18.7%. The delinquency rate also dropped for FHA and VA-guaranteed loans with 15 basis points and 16 basis points, respectively. All these gains contributed to compensate for a 20-basis-point increase for prime ARM loans, to approximately 5.3%.
An increasing number of prime ARM loans are veering towards special servicing. Only a small number of recently originated jumbo loans are counted among these prime ARMs, whereas the majority were issued in 2007 or earlier. As Mike Frantontoni MBA’s chief economist explained, despite the inflow of new mortgages with strong credit, the delinquency numbers remain high because of these old jumbo loans.
The steady improvements in mortgage performance represent the direct consequence of strong job growth and the continued increase in home prices on the market. These positive economy changes are also the factors that keep foreclosure rates and mortgage delinquency at historic lows.
For the second quarter, foreclosure rates dropped 16 basis points from the previous quarter and 84 basis points from 2013. The current rate is 2.48%, the lowest in foreclosure inventory since the first quarter of 2008. Compared to the first quarter of the year, there was also a 24 basis points decline in the serious delinquency rate (loans in the process of foreclosure or loans 90 days or more past due). The current 4.8% level is also 108 basis points lower than 2013. 75% of these seriously delinquent mortgages were originated in 2007 or before.
MBA further reported a very good performance of loans contracted in recent years. This excellent performance is tributary to tight credit conditions and the improving economy. Typical seasonal patterns are now observed again in mortgage delinquency with an increase in 30-day and 60-day delinquency rates observed for the second quarter. Yet, for the seasonal pattern, the estimates point to a drop for the second quarter and a full percentage point decrease from 2013.