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Mortgage Delinquencies Increase in Q2

Source: WSJ - Nick Timiraos

Posted on 23 Aug 2011

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According to a survey released Monday, the number of American households that fell behind on their mortgages increased slightly in the second quarter from the previous quarter.

After falling for most of the year, the figures offer the latest indication of how the slumping job market threatens to create new problems for housing.

Mortgage delinquencies, while still down from their year-earlier levels, have now edged up in two consecutive quarters after hitting a plateau last year, according to the Mortgage Bankers Association.

"It's troubling," said Jay Brinkmann, the trade group's chief economist. He said it illustrated "the ultimate impact of the inability to get sustained growth in the jobs market." During the second quarter, the unemployment rate rose to 9.2% from 8.8%.

The MBA said 12.87% of mortgage loans on one- to four-unit homes were 30 days or more delinquent or in the foreclosure process as of June 30, representing more than 6.3 million households. That was down from 14.4% a year ago but up from 12.84% at the end of March.

Nearly 4.8% of borrowers had missed two or fewer payments at the end of June on a seasonally adjusted basis, up from 4.7% at the end of March and 4.6% at the end of last year. Those are still down from year-ago levels of 5%.

Over the past 18 months, mortgage delinquencies have fallen, helped by efforts to modify loans. While high levels of foreclosures have kept pressure on home prices, a decline in the delinquency rate marks a key ingredient to reverse the five-year long slide in home prices.

Mr. Brinkmann said "the first thing you need to do is stop the bleeding. The bleeding in this case is the delinquencies."

The findings overshadowed a bright spot in the report, which showed that the number of loans considered "seriously delinquent"—those that have missed three or more straight payments or are in foreclosure—declined for the fourth straight quarter to their lowest level since early 2009. Those declines are "extremely important," said Mr. Brinkmann, because they mean that markets will ultimately have fewer foreclosures with which to contend.

The survey also underscored how state-specific foreclosure processes are increasingly determining the pace at which states work through the backlog of foreclosures.

While mortgage delinquencies remain highest in states such as Nevada, California, Florida and Arizona, which were hard-hit by the housing bubble, the inventory of loans in foreclosure is highest in states that require banks to obtain court approval when they foreclose on homeowners.

Nationally, some 4.4% of all loans were in foreclosure at the end of June. Of the nine states that exceeded the national average, all but Nevada have a judicial foreclosure process. Foreclosure rates were highest in Florida (14.4%), Nevada (8.2%), New Jersey (8%), Illinois (7%), Maine and New York (5.5%).

Judicial foreclosure processes are designed to give greater protections to borrowers, but courts have been overwhelmed by the volume of cases. More recently, lawyers for banks have sharply slowed legal filings in some states amid questions over whether they were submitting questionable documents in court.

The backlog threatens to create more uncertainty for housing markets because of concerns that a large "shadow" inventory of foreclosed properties could ultimately flood certain markets.