The Mortgage Corner
The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.85 percent of all loans outstanding at the end of the third quarter of 2014. This is approaching the historical average of 4.25 percent with those eastern and Midwestern states that conduct judicial foreclosures lagging the mostly western states that conduct Trust Deed auctions in clearing their books of delinquent loans.
The delinquency rate decreased for the sixth consecutive quarter and reached the lowest level since the fourth quarter of 2007. Whereas the delinquency rates for Fannie Mae and Freddie Mac are even lower—2.05 percent for “seriously delinquent” mortgages more than 90 days late in payments.
So it is another sign of the housing recovery. All areas of distress are lower, and housing prices continue to rise, though more slowly than last year. Housing price for homes with Fannie Mae guaranteed loans are up 5.9 percent YoY, and 6.1 percent for Freddie Mac guaranteed loans.
“Delinquency rates and the percentage of loans in foreclosure fell to their lowest levels since 2007,” said Mike Fratantoni, MBA’s chief economist. “We are now back to pre-crisis levels for most measures. Foreclosure starts were unchanged on a seasonally adjusted basis, but increased slightly in the raw data. Given that this measure reached the lowest level in eight years last quarter, and given the continued decline in delinquency and foreclosure inventory rates, we expect that the increase in the unadjusted starts rate is just regular seasonal fluctuation.”
The problem is mainly in the eastern states that have judicial foreclosures which must be processed through the courts, which is a very time-consuming process. For instance, Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures (D.C added some new foreclosure mediation requirements).
The top states are New Jersey (7.96 percent in foreclosure, down from 8.10 percent in Q2), Florida (6.12 percent), New York (5.72 percent) and Maine (4.29 percent). Former bubble states California (1.05 percent) and Arizona (0.85 percent) are now far below the national average by every measure.
This graph that dates from 2006 shows the difference. The blue line charts Judicial foreclosures (blue line) down to 4.20 percent of inventories, while Non-judicial foreclosures (dotted blue line) have fallen to 1.27 percent on inventories.
And interest rates are back to historical lows with ultra-low inflation. Thirty-year conforming fixed rates are now 3.75 percent in California, for instance. And such low inflation could be around for years to come, as there is oversupply in most commodities, including oil, that is feeding the deflationary environment.
This is good news for the housing market and real estate in general, as it makes housing more affordable for even entry-level buyers who have been priced out of the housing market during this recovery.
Harlan Green © 2014
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