US Delinquency Rate Falls but Not out of Woods Yet

19 November 2011

According to the latest data from the Mortgage Bankers Association the delinquency rate on US residential loans has fallen to its lowest level since the final quarter of 2008, the decline of 45 basis points on the quarter and 114 points on the year taking the rate down to 7.99% overall. Even better, the 30 day delinquency rate fell to the lowest level since the second quarter of 2007 at 3.19% according to the report.


Because of these improvements in delinquency rates, cumulative default rates are also continuing to stabilise says the report. Even loans originated at the height of the boom in 2006 and 2007, which still have the highest default rates are seeing their performance improving of late.


"We believe moderating first default and redefault rates are propelling this reduction, and this reduction is likely the primary factor causing cumulative defaults to flatten. Performance among loans originated in 2007 has improved more than that of loans from 2006 recently, both in terms of cumulative and active defaults," said Diane Westerback, managing director for structured finance at Standard & Poor"s. However, it"s still too soon to accurately assess whether these trends will continue, she said.


While it is hard to get excited or even enthusiastic about what seems like fairly lacklustre improvements, it is improvements in this area of the market that are needed the most if it is ever to get back on its feet. Less defaults, means less foreclosures, means less foreclosure inventory dragging down prices.


However, the falling defaults will take some time to filter through to foreclosures; according to data the foreclosure inventory rate, which includes all loans in foreclosure, was 4.43 percent at the end of the third quarter, which is a rise of 4 basis points on last year.


"While the delinquency picture changed for the better in the third quarter, the foreclosure data indicated that we are not out of the woods yet," said Michael Fratantoni, MBA"s VP of research and economics.


He described the foreclosure inventory as still "quite elevated" even though it"s at its lowest level since last year.

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