The percentage of loans in the foreclosure process ticked up to a new record high in the final three months of 2009, and could continue to climb depending on the fate of a record number of borrowers who are "seriously delinquent," or behind on their payments by 90 days or more, the Mortgage Bankers Association said today.

However, the percentage of mortgages 30 days past due eased from the third quarter to the fourth, a concrete sign of a "beginning of the end" of an unprecedented wave of mortgage delinquencies that began in early 2007, MBA Chief Economist Jay Brinkmann said.

While the improvement in short-term delinquencies was good news, loans 90 days or more past due now account for half of all delinquencies — the highest share in the history of the survey, Brinkmann said. A "sizable number" of those loans are in loan modification programs, he said.

Analysts at Standard & Poor’s Financial Services LLC this week released a report warning that most borrowers granted loan modifications end up redefaulting, and that a growing percentage of seriously delinquent loans are ending up in foreclosure.

The report concluded that lenders will inevitable add at least 1.75 million homes to their real estate owned (REO) property rolls, a "shadow inventory" that will take nearly three years to sell (see story).

According to the MBA, a staggering 15 percent of the mortgages surveyed were delinquent or in foreclosure at the end of 2009 — the highest level ever recorded in a survey that dates to 1953.

The survey covers 44.4 million loans on one- to four-unit properties, meaning that about 6.7 million mortgages were delinquent or in foreclosure at the end of the year.

Because the survey represents about 85 percent of all first-lien residential mortgages, the total number of delinquencies and loans in foreclosure would be closer to 7.8 million if the survey’s numbers are extrapolated.

Another way the MBA slices the numbers is to combine the percentage of seriously delinquent loans with loans already added to lenders’ foreclosure inventories. Those loans total 4.3 million, or 5.05 million if extrapolated to account for loans not included in the survey.

The MBA survey showed the non-seasonally adjusted delinquency rate climbing to 10.44 percent during the fourth quarter, up from 9.94 percent in the third quarter.

The percentage of loans in the foreclosure process also ticked up 11 basis points, to 4.58 percent. One basis point is equal to one one-hundredth of a percent.

The good news in the survey was that 30-day delinquencies fell by 16 basis points, to 3.63 percent, from the third quarter to the fourth. …CONTINUED

That was a surprise, because there’s usually a spike in short-term delinquencies at the end of the year, as borrowers struggle to their pay heating bills, go on Christmas shopping sprees, or cope with other seasonal factors.

In the nearly six decades the MBA has been conducting the survey, the non-seasonally adjusted 30-day delinquency rate has dropped only four times between the third and fourth quarters, and never by this magnitude., Brinkmann said. If normal seasonal patterns hold for the first quarter, "we should see an even steeper drop in the end of March data," Brinkmann said.

The drop is important, because 30-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures, he said.

"With fewer new loans going bad, the pool of seriously delinquent loans and foreclosures will eventually begin to shrink once the rate at which these problems are resolved exceeds the rate at which new problems come in," Brinkmann said. "It also gives us growing confidence that the size of the problem now is about as bad as it will get."

While the percentage of loans in the foreclosure process was up, the foreclosure start rate was down 22 basis points from the third quarter, to 1.2 percent.

The drop may be temporary, Brinkmann warned, because of the large increases in loans 90 days or more past due. The survey showed 5.09 percent of loans — 2.26 million mortgages –were delinquent by 90 days or more.

The MBA economist noted that the trend in mortgage delinquencies mirrors those seen in unemployment, where first-time claims for jobless benefits are down by a third since a March 2009 peak, and those who have been out of work for six months or more constituting more than 40 percent of the unemployed.

"Until the issue of this large segment of long-term unemployed is resolved, many of the longer-term mortgage delinquencies will remain a problem with a strong likelihood of turning into foreclosures," Brinkmann said.

The Congressional Oversight Panel overseeing the $700 billion Troubled Asset Relief Program (TARP) issued a report in December concluding that the Obama administration’s Home Affordable Modification Program (HAMP), which is funded largely by TARP, will prevent only a fraction of the projected 8 million to 13 million foreclosures anticipated in the next four or more years.

The report concluded that the HAMP program is not designed to address foreclosures caused by unemployment or to significantly reduce homeowners’ negative equity, and that the Treasury Department expects 40 percent of borrowers who are offered permanent HAMP loan modifications to redefault over the next five years (see story).

The Obama administration announced today that it will make $1.5 billion available to state housing agencies to help address problems facing the hardest-hit housing markets, using a formula for allocating funding that will be based on home-price declines and unemployment.


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