Hold Up! Mortgage Delinquencies Surge in September

October 23, 2012 No Comments »
Hold Up! Mortgage Delinquencies Surge in September

Just when things were looking so rosy, a new report released by Lender Processing Services seems to counter everything.

The company, which reports on mortgage delinquencies and foreclosures, announced that the month-over-month change in delinquency rate increased by a whopping 7.72%. That’s pretty darn big. LPS data covers approximately 70 percent of the overall mortgage market.

For the record, we’re talking about loans 30 or more days past due, but not yet in the process of foreclosure.

The home loan delinquency rate now stands at 7.40%, up from 6.87% in August, and now just slightly below the 7.72% rate seen in September 2011.

Last month’s jump essentially erased all the positive declines seen over the past 12 months.

In the past year, the delinquency rate was as high as 7.89% in December, and as low as 6.80% in March.

Still, it’s nowhere close to the 10.57% rate seen in January 2010, when all hope was lost.

So does this mean we’re headed for another downward cycle this fall and winter, similar to what we experienced last year?

Is all that cheerleading about a housing bottom going to come back to bite us?

I suppose only time will tell, as we don’t have an explanation yet for the sharp rise in delinquencies.

That comes in November, when LPS releases a more robust report about the numbers, unlike the “First Look” edition they released Monday.

If Lenders Don’t Foreclose, Does a Delinquency Make a Sound?

While delinquencies were certainly on the rise, foreclosures continued to drift lower.

The percent of loans in the process of foreclosure, known as the foreclosure pre-sale inventory rate, declined to 3.87% from 4.04% in August and 4.18% a year ago.

Sure, you can argue that delinquencies take a while to turn into foreclosures, and some are avoided via loan modifications and short sales and so forth.

But there are still 3.7 million properties 30 or more days past due that are not in foreclosure.

Even worse, 1.5 million properties are 90 days delinquent and not in foreclosure.

Overall, there are roughly 5.6 million delinquent properties out there, but only 1.9 million are in foreclosure.

If you look at foreclosure timelines, you’ll see that lenders have taken their time when it comes to actually foreclosing on homeowners.

It can take 500 days or longer, thanks in part to cumbersome judicial processing, the foreclosure settlement, the robosigning, and so on.

That has probably helped home prices rise, thanks to artificially tight inventory, but eventually many of these properties have to come to market.

Fortunately, less than 30% of 2007 and prior loan vintages remain active today, so much of the bad stuff has already been eradicated from the system.

Remember that now infamous interest rate reset chart? Most of those loans probably never reset.

And the new loan originations are of much better quality, with lower current mortgage rates, lower loan-to-value ratios, and higher credit scores.

That paints a really bright future for the housing market, but it’s clear we still have a lot of bumps in the road before we pop the champagne and celebrate.

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