While the foreclosure inventory remained flat during the third quarter, more borrowers paid their mortgages on time -- resulting in the lowest delinquency rate in three years -- an industry report said.
According to the National Delinquency Survey released Tuesday by the Mortgage Bankers Association of America (MBA), the seasonally adjusted delinquency rate for one-to-four unit properties fell 34 basis points (BPS) from the second quarter to 4.28%. A year ago, the rate was 4.66%.
The delinquency rate is at its lowest level since the third quarter of 2000 when it was 3.98%, said MBA spokesman Matthew Royse. The group added that the 34 BPS drop is the highest percentage-point reduction since the first quarter of 1990.
"With the expectation of continued strong economic growth through the next several quarters, job growth should continue and accelerate," said the group's chief economist Doug Duncan, in a statement. "This, in turn, is likely to give support to the downward trend in the delinquency rate, taking foreclosures lower as well."
"While economic growth will lower delinquency rates, most loans have now been on the books less than three years so some increase in delinquency might be expected as they age," added Duncan.
The lower overall delinquency rate was primarily due to fewer loans delinquent in the 30-to-59-day category, the survey said. On a seasonally adjusted basis, the percentage of these loans fell 23 BPS from the second quarter to 2.77%, said Royse.
Of the three loans types, FHA loans had the highest delinquency rate at 12.13%, although the figure is down 46 BPS from the second quarter. The VA loan delinquency rate dropped 50 basis points to 7.74%, while for conventional loans it fell 21 BPS to 2.93%, according to the survey.
The delinquency rate for prime conventional loans fell 15 BPS to 2.45%, and plunged 128 BPS to 11.71% for subprime conventional loans. The MBA pointed out the subprime rate was derived from a much smaller sample of loans -- 1.5 million. Fourth-quarter results should reflect a much better representation of the subprime market when 2.5 million more subprime loans are studied, said Duncan in a conference call.
The percentage of loans in the process of foreclosure, which are not included in the overall delinquency figure, was 1.12%, unchanged from the second quarter. FHA loans jumped the most -- increasing 16 BPS from the second quarter to 2.80%. VA loans were reported at 1.53% and conventional loans were 0.84%, according to the survey.
The rate of foreclosure loans started during the second quarter increased 6 BPS to 0.38% for all loans. MBA added that the rate of foreclosures started for FHA loans is the highest ever registered in the survey, up 17 BPS to 0.98%.