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Record Lates to Head Higher

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Home loan delinquency increased from a record high and is expected to set more records. When a real estate recovery does eventually arrive — it won’t necessarily start in hard-hit markets.

Residential delinquency of at least 30 days, including foreclosures, shot up to 14.41 percent in the Mortgage Bankers Association’s third-quarter National Delinquency Survey. It was “the highest ever recorded” based on MBA data back to 1972.

In the second-quarter report, home-loan delinquency was 13.16 percent.

Delinquency was based on 44,645,717 loans serviced as of the end of September — including 33.9 million prime loans, 4.8 million FHA loans and 4.7 million subprime mortgages. It also included 1.2 million VA loans.

Third-quarter delinquency of at least 30 days but excluding foreclosures was a record 9.94 percent, up from 8.86 percent in the second quarter. On a seasonally adjusted basis, delinquency was 9.64 percent, 40 BPS higher than the second quarter.

Un-adjusted prime-loan delinquency excluding foreclosures was 6.94 percent, while subprime late payments were 26.66 percent and FHA delinquency was 15.04 percent.

Foreclosures were started on 1.42 percent of all types of loans during the latest period, rising from the second quarter’s 1.36 percent .

The prime foreclosure start rate was 1.14 percent, while 3.76 percent of subprime borrowers faced a new foreclosure filing and FHA foreclosure starts were 1.31 percent.

MBA Chief Economist Jay Brinkmann explained that an increase in FHA foreclosure starts was worse than it appeared because the 1.1 million new FHA loans closed during the past year had the effect of pulling the delinquency rate lower. Without the new loans factored in the portfolio — the FHA foreclosure start rate would have been 1.76 percent.

Arizona, California, Florida and Nevada continued to account for a disproportionate share of all third-quarter foreclosure starts: 43 percent.

The U.S. foreclosure inventory rate was 4.47 percent as of Sept. 30. Three months earlier, the rate was 4.30 percent.

The inventory of prime mortgage foreclosures was 3.20 percent, the subprime inventory was 15.35 percent and the FHA foreclosure inventory finished the third quarter at 3.32 percent.

“Delinquency rates and foreclosure rates will continue to worsen before they improve,” Brinkmann predicted.

He explained that while U.S. employment will begin to slowly improve next year, the hardest-hit real estate markets won’t necessarily be the first areas to benefit. In fact, hard-hit markets — with an aggregate inventory of 3.9 million U.S. homes for sale in addition to 4.0 seriously delinquent loans — are likely to face more pressure.

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