Residential mortgage delinquencies and foreclosure inventory fell in the third quarter from the previous quarter, due to a strengthening economy, the Mortgage Bankers Association said today.

The seasonally adjusted delinquency rate for mortgage loans on one- to four-unit residential properties fell to 4.41 percent in third quarter 2004, down two basis points from the second quarter of this year and down 24 basis points from the third quarter of last year.

The foreclosure inventory percentage at the end of the third quarter was 1.14 percent, down 10 basis points from the same quarter last year and down two basis points from the second quarter. The seasonally adjusted percentage of new foreclosures remained unchanged from the second at 0.39 percent, down five basis points from the third quarter of last year.

“The performance of delinquencies and foreclosures is improving as expected,” said Doug Duncan, MBA’s chief economist and senior vice president. “The continued modest declines in both delinquencies and foreclosures reflect the strong pace of economic growth and its steady, modest job creation. These improvements override the effects of the increased subprime and adjustable-rate mortgage shares and the aging of the young mortgage portfolio. We expect this trend of modestly declining delinquencies and foreclosures to continue.”  

The seasonally adjusted third quarter delinquency rates fell for all loan types year-over-year.

For prime loans, the seasonally adjusted delinquency rate fell from 2.44 percent in the third quarter 2003 to 2.32 percent in the third quarter of this year. The percentage of prime loans in foreclosure decreased from 0.53 percent to 0.48 percent, while the percentage of prime loans that entered the foreclosure process during declined to 0.18 percent from 0.2 percent a year ago and dropped one basis point since the previous quarter.

Among subprime loans, the seasonally adjusted delinquency rate declined from 11.74 percent a year ago to 10.39 percent. At the end of the third quarter, the foreclosure inventory percentage was 4.07 percent, down from 5.74 in the third quarter of 2003. The percentage of subprime loans in which foreclosures were started during the third quarter decreased from 1.68 percent a year ago to 1.36 percent, but increased 18 basis points since second quarter 2004.

The seasonally adjusted delinquency rate for Federal Housing Administration loans fell from 12.35 percent a year ago to 12.22 percent in the third quarter. The percentage of FHA loans in foreclosure increased from 2.82 percent to 2.84 percent, whereas the percentage of loans entering the foreclosure process during the quarter decreased from 1 percent to 0.98 percent. In the second quarter, the percentage of new foreclosures was three basis points lower.

Among Department of Veterans Affairs loans, the delinquency rate was 7.28 percent in the third quarter compared with 7.89 percent a year ago. The percentage of VA loans in foreclosure increased to 1.6 percent from 1.55 percent a year ago, and the percentage of new foreclosures increased one basis point year-over-year to 0.51 percent. That’s also a one basis point increase from the previous quarter.

Compared with the second quarter of this year, the seasonally adjusted delinquency rates fell for most loan types during the third quarter: eight basis points for prime loans, 30 basis points for FHA loans and 27 basis points for VA loans. Among subprime loans, the delinquency rate rose 35 basis points.

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