The Mortgage Bankers Association (MBA) released its 4Q08 National Delinquency Survey (NDS) yesterday and reported that the delinquency rate for mortgage loans on 1-4 unit residential properties rose to a seasonally adjusted rate of 7.88% of all loans outstanding. This increased 89 basis points from 3Q08 and 206 basis points compared with year ago.

The NDS also showed that the percentage of loans 60 days and 90+ days past due set new record highs in the quarter, jumping to 3% from 2.20% (NSA) in 3Q08 on the 90-day figure.

Meanwhile, foreclosure start rates increased just one basis point to 1.08% from 1.07% in the third quarter. Although the number sounds encouraging, it shouldn't necessarily be interpreted that way, said Jay Brinkmann, MBA chief economist.

The MBA noted that normally servicers would have initiated foreclosure actions on a large percentage of these loans but delayed taking action because of the moratoriums on foreclosure actions by various states as well as Fannie Mae and Freddie Mac. It was also to give servicers an opportunity to work on loan modifications. It is also notable that contributing to the increase in 90+ day delinquencies was a spate of borrowers running their accounts 90-day delinquent so that they can qualify for certain modifications, according to Brinkmann and some servicers.

The worsening job environment is now moving to the forefront of foreclosure/delinquency issues whereas previously it was related to the loan structure, lax underwriting, fraud and overbuilding leading to supply and demand getting out of line, Brinkmann said in a conference call.

This is implied by the increasing portion of 90+ day delinquencies for prime fixed-rate loans, which has risen 57 basis points in 4Q08 from 3Q08 and 143 basis points for subprime, fixed loans.

"The delinquency rates continue to climb across the board for prime fixed-rate and subprime fixed-rate loans, loans whose performance is driven by the loss of jobs or income rather than changes in payments," Brinkmann said.

On the subprime side, while still a problem, the MBA noted that 30-day delinquencies on subprime ARMs have declined and is at its lowest point since 1Q07.

Factors contributing to this include: (1) lower short-term rates; (2) a large part of reset problems are past; (3) no subprime loans have been made since early 2007. "Absent a sudden increase in short-term rates, this trend should continue," Brinkmann said. 

Further evidence of the recessionary impact and job issues on delinquencies is shown by the sharp increases in 90+ delinquencies for states such as Louisiana, New York, Georgia, Texas and Mississippi, said the MBA.

However, California, Florida, Nevada, Arizona and Michigan remain the dominant forces on the delinquency figures.

At this time, the MBA expects the economy to begin improving at the end of this year, with the employment picture following in middle of 2010.

While the worsening employment does not figure well on the foreclosure/delinquency outlook, the Obama Administration's housing plan could offset these negative predictions. How soon that will be is unclear, Brinkmann said, but it could be as early as the end of the first quarter as the program is now underway. But, as he observed several times in the call, "so much is driven by job losses."

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