The delinquency rate on all outstanding residential mortgages fell to a three-year low in the fourth quarter with most loan types improving except for one product: Federal Housing Administration (FHA) loans.

According to figures compiled by the Mortgage Bankers Association (MBA), the national delinquency rate – excluding foreclosures – dropped to 7.58%, the lowest reading since 4Q08 when the rate was 7.88%.

ASR sister publication National Mortgage News estimated that roughly $700 billion of home mortgages are currently in arrears, not including foreclosures. Consumers owe $9.23 trillion on their one- to four-family loans.

Late payments peaked in the 1Q10 at 10.06%.

The trade group noted that the outlook for severely delinquent loans improved slightly in  the fourth quarter with 0.99% of loans entering foreclosure during the period compared to 1.08% in 3Q, and 1.27% a year ago.

The delinquency rate on subprime loans improved to 20.83%, the best reading since the third quarter of 2008, MBA said.

FHA loans, on the other hand, are getting worse: delinquencies rose to 12.36% at yearend compared to 12.09% in the third quarter and 12.27% a year earlier. Moreover, the inventory of FHA foreclosures rose to 3.54% in the fourth quarter, the highest reading since the second quarter of 2010.

There is a growing concern in Washington – and the mortgage industry – that FHA may need to tap a line of credit it has with the U.S. Treasury to keep its mortgage insurance fund in the black.
MBA chief economist Jay Brinkmann said in a statement that, “Mortgage performance continued to improve in the fourth quarter, reflecting the improvement we saw in the job market and overall economy.”

Brinkmann noted that a big reason for the progress in late payments is tied to vintages: “…loans that are seriously delinquent are predominantly made up of loans originated prior to 2008 and this pool is steadily growing smaller as a percent of total loans outstanding.”

In other news, delinquencies might be falling, but not foreclosures. Foreclosure filings nationwide rose 3% in January from the month prior, a sign that improving delinquency rates may have a huge lag effect.

“We continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw,” said Brandon Moore, CEO of RealtyTrac.

Although the analytics firm released numbers showing a worsening foreclosure picture in January, compared to a year ago filings are down 19%.

In January servicers and banks filed 210,941 foreclosure-related tickets: default notices, scheduled auctions and bank repossessions.

RealtyTrac said that for the first time since the robo-signing scandal broke in October 2010, foreclosure activity increased annually in Florida, Illinois, Pennsylvania and Indiana. In December, California, Arizona and Massachusetts experienced higher year-over-year foreclosure activity too.

Moore anticipates foreclosure filings to continue to increase over the next few months in the wake of the $25 billion robo-signing settlement agreed to by the nation's five largest servicers, the states, and the Department of Justice.

“The settlement sets forth clear guidelines for lenders and servicers to follow when foreclosing, which should allow them to push through some of the delayed foreclosures from last year,” Moore added. “Other roadblocks to foreclosure are still in place at the state level, however, including legislation altering the foreclosure process and lawsuits against lenders. We expect to see somewhat uneven trends in local and regional foreclosure numbers going forward as lenders work through these additional legislative and legal roadblocks.”

During January, the states with the highest foreclosure rates continued to be Nevada, California and Arizona.

With one in every 198 housing units filing for foreclosure, Nevada led the nation for the 61st consecutive month. A total of 5,931 properties had some sort of foreclosure filing in January.
California foreclosure activity dropped to a 50-month low in January, but still had the second highest foreclosure rate with one in every 265 housing units filing for foreclosure. There was a 14% increase in foreclosure activity in Arizona, helping the state post the third highest foreclosure rate in which one in every 325 housing units was foreclosed upon.

Lenders repossessed 66,542 properties in January, 8% more than the prior month and 15% lower from the same time period a year ago.

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