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DELINQUENCY, FORECLOSURE RATES SEE STEEP DECLINES IN Q4 The national delinquency rate moved contrary to the typical seasonal trend and declined from the third to fourth quarter of last year, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. At the same time, the trade group says foreclosure starts and the foreclosure inventory rate made history with their decreases. In the fourth quarter of 2012, the national delinquency rate fell to 7.09 percent, a quarterly and yearly drop of 31 and 49 basis points, respectively, MBA reported. The delinquency rate is seasonally adjusted and includes one-to-four-unit residential properties. MBA says delinquency rates typically display an increase from Q 3 to Q 4, but even the non-seasonally adjusted rate dropped, falling 13 basis points to 7.51 percent. The serious delinquency rate, which includes 90-plus-day delinquencies and loans in foreclosure, stood at 6.78 percent after shedding 25 basis points from Q 3 and 95 basis points from Q 4 2011. Foreclosure starts dropped to the lowest level since the second quarter of 2007, representing just 0.7 percent of loans in Q 4 2012, down from 0.9 percent in Q 3 and 0.99 percent in Q 4 2011. The foreclosure inventory rate also declined during the final three months of 2012, falling below 4 percent to 3.74 percent. Compared to a year earlier, the rate is 64 basis points lower; it's down 33 basis points from the previous quarter. "The foreclosure starts rate decreased by the largest amount ever in the MBA survey and now stands at half of its peak in 2009," said Jay Brinkmann, MBA's chief economist and SVP of research. "Similarly, the 33 basis point drop in the foreclosure inventory rate is also the largest in the history of the survey." MBA reported the combined percentage of loans at least one payment past due or in foreclosure was 11.25 percent on a non-seasonally adjusted basis, which corresponds to a quarterly and yearly decrease of 46 basis points and 128 basis points, respectively. Amid the positive developments, Brinkmann noted one cause for concern related to the 28 90-plus-day delinquency rate of 3.04 percent. "One cautionary note is that the 90-plus delinquency rate increased by 8 basis points, reversing a fairly steady pattern of decline and the largest increase in this rate in three years. While we normally see an increase in this rate in individual states when they change their foreclosure laws, 38 states had increases in the percentage of loans three payments or more past due, indicating that we could see a modest increase in foreclosure starts in subsequent quarters," Brinkmann said. MBA's survey also examined mortgage performance by loan type, including Federal Housing Administration (FHA) loans which were mixed across the board. Regarding FHA loan performance, Brinkmann said, "While the foreclosure starts and foreclosure inventory percentages both fell, the delinquency percentages generally remained flat or increased slightly, particularly the percentage of loans 90 days or more past due. However, 44 percent of the FHA loans that are seriously delinquent were made in the years 2008 and 2009, while loans made in those years represent a smaller share of FHA's overall book of business." Brinkmann also noted Florida and the judicial process in some states continue to be problem areas for foreclosure inventory. MBA data show foreclosure inventory is 6.22 percent in judicial states compared to 2.13 percent in non-judicial states. "In those cases, the ultimate reduction in the number of loans in foreclosure will have less to do with the recovery of the economy and the housing market than with the return to reasonable foreclosure timelines," Brinkmann explained. Florida's high foreclosure inventory rate of 12 percent is also impacting the national rate, according to MBA. The states with the highest foreclosure inventory rates after Florida are also judicial: New Jersey (9 percent), New York (6 percent), and Illinois (6 percent). MORTGAGE FRAUD RISK CLIMBS TO HIGHEST LEVEL SINCE 2009 In the fourth quarter of 2012, the risk of mortgage fraud elevated to the highest level since 2009, Interthinx reported. According to the company's Mortgage Fraud Risk Report, the mortgage fraud risk index climbed to 159, representing a 16 percent increase from Q 3 2012 and a 9 percent increase from Q 4 2011. Interthinx pinpointed the source of the increase to a surge in property valuation fraud risk, which rose 25 percent from Q 3. Property valuation fraud occurs when property values are manipulated to create equity. Interthinx explained investor activity in recovering metro areas creates rapid price changes and opportunities for value manipulation. The other types of fraud the index tracks are identity, occupancy, and employment/income. Reflecting the national trend, the number of "very high-risk" metros spiked from 70 in Q 3 2012 to an unprecedented 125 in Q 4, Interthinx's report revealed. Five states contributed at least five more high-risk metros to the list. Ohio bumped up the Q 4 figure by adding eight metros, the most out of all the states, while California, Georgia, and Michigan added six, and South Carolina added five metros. In addition, 26 states had at least one newly added "very high-risk" metro not seen on the Q 3 list. During the final quarter of 2012, the riskiest metros were located in Florida and California, with the Sunshine State's Lakeland-Winter Haven metropolitan statistical area (MSA) recording the highest risk value at 292. Other metros in the top five were Merced, California (288); Tampa-St. Petersburg-Clearwater, Florida (286); Yuba City, California (285); and Jacksonville, Florida (285). Florida and Nevada held their spots as the top two riskiest states. States where risk levels decreased by at least 20 points year-over-year were mainly located east, while states that saw significant declines were largely concentrated west. "Clearly, this report illustrates the reality that the mortgage industry is driven by trends at the state and metropolitan levels and that the will to commit mortgage fraud is not abating—it is simply shifting strategy to meet opportunity," said Jeff Moyer, president of Interthinx. Interthinx says its indices are a leading indicator of default and foreclosure activity, so areas with high risk of fraud are likely to see high foreclosure rates. Looking ahead, Interthinx noted the states to watch closely are Florida, Nevada, California, Illinois and Ohio. KNOW THIS Foreclosure searches on mobile devices were up 180% year-over-year in the third quarter of last year, according to Google's internal data.

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