Mortgage Default Rates Improving, But No Celebration Yet

The newest survey from the Mortgage Bankers Association revealed that the delinquency rate for mortgages fell in the last quarter of 2010, to 8.2 percent of all outstanding loans (not including homes in foreclosure.) That’s down from 9.1 percent the previous quarter and 9.5 percent the year before.

“These latest delinquency numbers represent significant, across the board decreases in mortgage delinquency rates in the US,” Jay Brinkmann, MBA’s chief economist said in a press release. “Total delinquencies, which exclude loans in the process of foreclosure, are now at their lowest level since the end of 2008.”

However, the number of homes in the foreclosure process has also reached record proportions again, with roughly 4.5 million loans either in foreclosure or seriously delinquent, according to Guy Cecala, publisher of Inside Mortgage Finance.

“We have to clear out those distressed properties before we can talk about any kind of housing market recovery,” said Cecala as quoted in a Washington Post piece. “There are signs of improvement, but I think it’s a little early to break out the champagne.”

He pointed out that 4.63 percent of all homes are now in some stage of foreclosure, an increase from 4.4 percent the previous quarter, and almost half of all home purchases in January involved either foreclosed properties or short sales, resulting in downward pressure on all home prices. Cecala estimated said that it will take another two years at least to clear out the current stock of foreclosures, but it will probably take much longer.

A bright spot in the report, though, is that the number of mortgages that are only one payment behind dropped to the lowest level since the end of 2007, a sign that the job market may be stabilizing.

“First-time delinquency is very much a measure of distress in the employment system,” said the MBA’s Brinkmann. “I see all of this as pretty good news. It looks like we’ve clearly hit the turning point.”

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