A survey of lenders shows the number of homes in the foreclosure process during the second quarter declined for the first time since 2006, but that foreclosure inventory could be driven back up by a surge in borrowers falling one payment behind on their mortgages.
The results of the Mortgage Bankers Association’s latest National Delinquency Survey — which covers 85 percent of first-lien mortgages, or about 44.5 million loans — revealed that even as the foreclosure picture showed signs of improvement, more trouble could lie ahead.
After peaking at 3.77 percent in the first quarter of 2009, the percentage of loans one payment behind had fallen to 3.31 percent by the end of last year. The latest survey showed the 30-day delinquency rate climbing again, to 3.51 percent.
Extrapolating the 30-day delinquency rate to loans not included in the survey suggests that as many as 1.8 million homeowners were one payment behind on their mortgages — a first step on the path to foreclosure.
MBA Chief Economist Jay Brinkmann said there were two likely causes for the increase in 30-day delinquencies — rising first-time claims for unemployment insurance and homeowners who were in loan modifications getting behind again because of their weak credit.
The latest report from the Treasury Department shows that nearly half of the 1.3 million homeowners who have accepted loan modifications under the Home Affordable Modification Program have redefaulted.
"Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers," Brinkmann said.
"Until we see the increase in the number of households that comes with an increase in the number of paychecks, all measures of the health of the housing industry will continue to be weak."
The bad news about rising 30-day delinquencies put a damper on what would otherwise have been encouraging trends in foreclosure starts and the 90-day delinquency rate.
The foreclosure start rate was down 25 basis points from a year ago and 12 basis points from the first quarter, to 1.11 percent. A basis point is one one-hundredth of a percent.
The seriously delinquent rate — loans 90 days past due or in foreclosure — was 9.11 percent, down 43 basis points from the first quarter but up 114 basis points from a year ago.
"The fact that both the 90-day delinquency rate fell and the foreclosure start rate fell means that a significant number of these seriously delinquent loans have been successfully modified and reclassified as performing, current loans," Brinkmann said.
The survey showed that 4.57 percent of all loans were in some stage of foreclosure, down from 4.63 percent a year ago.
Extrapolating those results to loans not included in the survey suggests that about 2.4 million homes were in the foreclosure process. States with the highest foreclosure inventory rates were Florida (14.04 percent), Nevada (10.33 percent) and New Jersey (6.28 percent).
The combined percentage of loans in foreclosure or at least one payment past due was 13.97 percent on a non-seasonally adjusted basis, a four-basis-point decline from 14.01 percent last quarter.
That rate, extrapolated to loans not included in the survey, suggests that 7.3 million of roughly 52.3 million mortgages nationwide are in foreclosure or at least one payment behind.