The residential mortgage loan delinquency rate decreased to a seasonally adjusted 9.13 percent during the third quarter, the Mortgage Bankers Association reported today.
It fell from 9.85 percent in the second quarter and 9.64 percent a year ago, per the MBA’s National Delinquency Survey.
Meanwhile, the percentage of loans on which foreclosure was started increased to 1.34 percent, up from 1.11 percent a quarter earlier, but down from 1.42 percent a year ago.
The percentage of loans in the foreclosure process was 4.39 percent at the end of the quarter, down 18 basis points from the second quarter and eight basis points from a year ago.
The seriously delinquent rate, the percentage of loans 90 days or more past due or in the process of foreclosure, fell to 8.70 percent from 9.11 percent last quarter and 8.85 percent a year ago.
That pushed the combined percentage of loans in foreclosure or at least one payment past due to 13.78 percent, a 19 basis point decline from 13.97 percent last quarter.
Foreclosure Paperwork Issues Will Show Up Later
“The foreclosure paperwork issues announced by several large servicers in late September and early October are unlikely to have had a large impact on the third quarter numbers, but may well increase the foreclosure inventory numbers in the fourth quarter of 2010 and in early 2011,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in the release.
“The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale.”
He noted that the loan servicers who halted foreclosure sales temporarily may show higher foreclosure inventory numbers in the fourth quarter and early next year.
And said any drop in foreclosure sales over the next few quarters may temporarily reduce the inventory of homes on the market, but they’re likely to come on the market in the medium term anyways, so it’ll only delay matters.
Prime fixed mortgages and FHA loans currently make up nearly 78 percent of loans outstanding, and accounted for more than half of the foreclosures started in the quarter, compared to 39 percent a year ago.
Meanwhile, the pool of subprime and adjustable-rate mortgage borrowers continues to shrink, either through refinance or default.
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John Ulzheimer, a MintLife personal finance expert, is answering questions straight from fans of the Mint.com Facebook page. Here’s what he has to say about short sales and credit scores:
Q1: How exactly does short selling your home impact your credit and for how long?
A short sale is a more recently popular way to dispose of an underwater mortgage, which is a mortgage where you owe more than the home is worth. According to some sources, about 30% of mortgages are currently in this situation, including the mortgage belonging to yours truly, a humbled credit expert.
A short sale occurs when a buyer makes an offer on your home but that offer doesn’t cover the amount of loans taken against the house. So, if you owe $250,000 but are offered only $200,000, then you’ve been made a short offer. If your lender agrees to accept the offer to dispose of the home, then the home has been sold short. The good news is you’re out of the loan and don’t owe that $50,000 deficiency balance.
The news isn’t all good. Short sales are reported to the credit reporting agencies as a settlement, which is an accurate depiction of the loan. The lender settled for less than your really owe, hence the settlement credit reporting. And, yes, settlements are considered to be derogatory by credit scoring systems.
Don’t believe the marketing by real estate agents that short sales are better for your credit than foreclosures. That’s not true. Settlements will remain on your credit reports as long as foreclosures do and they have the same impact to your credit scores. The only difference is if the lender doesn’t report the deficiency balance along with your settlement. If that’s the case, then the impact to your credit scores isn’t quite as bad as a foreclosure.
Q2: Why does not paying our bills drop our credit, but paying them does nothing? I shouldn’t have to have debt to get credit, it seems stupid and backwards!
I appreciate your frustration when it comes to credit ratings/scores. They are maddening if you expect them to function like common sense suggests. This isn’t going to change your mind but credit scores are completely driven based on what’s predictive of your risk as a borrower. Some things matter and some things don’t.
Now, having said that, your comment about having debt being necessary to get credit is absolutely incorrect. In fact, not having debt is much better because of the infamous “DTI” ratio. DTI, or debt-to-income, is the amount you pay each month to satisfy debts, relative to your income. The fewer debts you have, the better your debt-to-income percentage and the more likely you are to be approved for large loans, like mortgages.
Additionally, I can assure you as someone who spent seven years with his hands deep inside the FICO scoring system, that paying your bills is handsomely rewarded by FICO. The most important factor in your FICO score is your payment history. The absence of negative information, which means you always pay your bills on time, is worth 35% of the points in your scores.
The issue of having debt in order to have a good credit score or get more credit is widely misreported, mostly by people who simply don’t understand credit scoring. You don’t have to have one penny of debt (or ever had one penny of debt) to have FICO scores well into the 800s. FICO scoring has no memory, so they don’t know what your debt was yesterday, the day before, or 5 years before.
Now, I know what you’re thinking: When you apply for credit you’re getting into debt. That’s incorrect. Every single credit card you have ever opened starts off with a $0 balance. And, if you pay your bill in full each month, then you never have credit card debt.
Taking out loans, such as mortgages, auto loans, student loans or personal loans, certainly does mean you’re getting into debt. However, this is certainly considered a very different type of debt than that vile credit card debt, which, incidentally, is much less as a country than our student loan debt. And, FICO weighs that installment form of debt very differently than it weighs credit card debt. It’s quite easy to have great FICO scores even with large amounts of installment debt.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.
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The residential mortgage delinquency rate fell to a seasonally adjusted 8.22 percent in the fourth quarter, according to the Mortgage Bankers Association‘s (MBA) National Delinquency Survey released today.
It decreased from 9.13 percent in the third quarter and 9.47 percent a year ago, signaling that the worst is potentially behind us.
Meanwhile, foreclosure actions were started on 1.27 percent of loans, down from 1.34 percent in the third quarter, but up from 1.20 percent a year ago.
The percentage of loans in the foreclosure process at the end of the fourth quarter increased from 4.39 percent to 4.63 percent, and was up slightly from a year ago.
That brought the combined percentage of loans in foreclosure or at least one mortgage payment past due to 13.56 percent (on a non-seasonally adjusted basis), down from 13.78 percent last quarter and 15.02 percent a year ago.
MBA chief economist Jay Brinkmann noted that total delinquencies are at their lowest level since the end of 2008, and mortgages just a single payment behind are at the lowest level since the end of 2007.
“Perhaps most importantly, loans three payments (90 days) or more past due have fallen from an all-time high delinquency rate of 5.02 percent at the end of the first quarter of 2010 to 3.63 percent at the end of the fourth quarter of 2010, a drop of 139 basis points or almost 28% over the course of the year,” he said, in the report.
However, the percentage of loans in foreclosure equaled the all-time high, which the MBA attributed to the robosigning scandal that caused a temporary halt in foreclosure sales.
In Florida, over 24 percent of mortgages are one payment or more past due or in foreclosure, the highest rate in the nation, followed closely by Nevada at over 22 percent, and well above the 13.56 percent national average.
Compared to the fourth quarter of 2010, the delinquency rate decreased 135 basis points for prime fixed mortgages, 124 basis points for prime adjustable-rate mortgages, 284 basis points for subprime fixed mortgages, 152 basis points for subprime ARM mortgages, 154 basis points for FHA loans, and 91 basis points for VA loans.
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Mortgage delinquencies eased in January after an uptick to end 2022, but foreclosure numbers trended higher, according to Black Knight. The national delinquency rate inched down 10 basis points from December to 3.38% last month, a share equal to 1.8 million homes, the data analytics provider said in its monthly First Look report. On a … [Read more…]