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Foreclosures, delinquencies drop but may climb again

By Frank Ahrens
Thursday, August 26, 2010; 6:37 PM

Foreclosures and late payments on home mortgages dropped slightly in the second quarter of this year, but sustained high unemployment and a stalled economic recovery could make the improvement short-lived.

Although one in 10 mortgages in the United States is still behind by at least one payment, the number of "seriously delinquent" loans - those that are at least 90 days late - dropped compared with the first three months of this year, the Mortgage Bankers Association said Thursday.

Also, the percentage of homes in foreclosure dropped to 4.57 percent in the second three months of this year, compared with 4.63 percent in the first quarter.

However, the number of seriously delinquent mortgages is still higher than it was during the comparable period last year.

"When I'm asked, 'Are things getting better or worse?' my answer is like most things these days," Mortgage Bankers Association chief economist Jay Brinkmann said in a conference call Thursday. "It is a combination of good news and not-so-good news. And there are areas of concern even with the good news."

The nation's foreclosure and mortgage-delinquency statistics are dominated by large, depressed markets in the four "sand states:" Nevada, Arizona, California and Florida. In the second quarter of this year, California had 13.2 percent of all outstanding mortgages and 14.7 percent of all foreclosures, the association said.

The positive numbers are the result of three shifts, Brinkmann said.

Last year, there was a drop in the number of mortgages that were only one payment past due, Brinkmann said. Moving to this year, that means the number of mortgages that are several payments past due has decreased. However, the association has seen a recent uptick this quarter in new delinquencies.

Second, a number of homes with distressed mortgages have been sold, thanks to the federal homebuyer tax credit. But when that credit expired at the end of April, home sales predictably tumbled, with sales last month of previously owned homes hitting a 15-year low.

Third, some of the mortgage-relief programs appear to have worked, chiefly those engineered by banks in the private sector. Government efforts to keep troubled homeowners from defaulting on their mortgages have had little effect. President Obama's signature mortgage-relief plan has a drop-out rate of nearly 50 percent, the government reported last week. Historically, 40 to 60 percent of all reworked mortgages fall back into delinquency, Brinkmann said.

The State Foreclosure Prevention Working Group, a collection of state attorneys general and state banking regulators, said this week that homeowners who had recently reworked their troubled mortgages were faring better than those who did so earlier during the financial crisis, giving hope that a second wave of mass defaults can be avoided.

Brinkmann said the report provided "cautiously optimistic news" about the mortgage market. However, he said, as long as unemployment remains near 10 percent, Thursday's good news will probably be short-lived, he said.

"A number of us are having to rethink our forecasts based on numbers that have come in in the past month or so," Brinkmann said, referring to last week's higher-than-expected new jobless claims, the stock market's dismal performance this month and downgrades in estimated economic growth for the rest of the year.

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