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DELINQUENCY STUDY INDICATES HOUSING IS NEARING PRE-CRISIS NORMS Delinquency and foreclosure data reveals the housing market is heading back to pre-crisis norms, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey released last month. The percentage of home loans in delinquency or foreclosure was 9.75 percent as of the third quarter, the lowest level in about five years, the trade group reported. "We are now back to pre-crisis levels by almost any measure," commented Mike Fratantoni, MBA's VP of research and economics, during a press conference announcing the survey results. MBA chief economist Jay Brinkmann noted that "major drops across the board in all types and categories with a few minor exceptions" are evident in the latest survey results. The MBA report revealed drops in 30-, 60-, and 90-plus-day delinquencies as well as foreclosure inventory at the national level. Brinkmann attributed the improvement to the higher quality loans written since the recession, adding that delinquencies occurring today are the results of "problems of the past." The national delinquency rate as of the third quarter was 6.41 percent, which is the lowest level recorded by MBA since the second quarter of 2008. 28 The national delinquency rate as of the third quarter was 6.41 percent, which is the lowest level recorded by MBA since the second quarter of 2008. Serious delinquencies dropped 138 basis points over the previous 12 months to hit 5.65 percent in the third quarter, and foreclosure inventory dropped 99 basis points to 3.08 percent, MBA reports. Brinkmann called attention to the delinquency rate among Department of Veterans Affairs (VA) loans—now 5.41 percent—which is the lowest it's been since 1980. He noted that 40 percent of today's VA loans have been written since the crisis, thus increasing the denominator of higher-quality loans and leading to the steep decline in the VA delinquency rate. Just as declining delinquency rates are approaching pre-crisis levels, foreclosure starts have nearly hit that mark as well. The foreclosure start rate in the third quarter was 0.6 percent by MBA's measurement, down from a peak of 1.4 percent and near pre-crisis levels, which hovered around 0.4 percent. States with the most foreclosure starts in the third quarter were New Jersey, Florida, and Nevada. While foreclosure starts are generally even across judicial and non-judicial states, Brinkmann notes that in Q 3, judicial states tended to post higher foreclosure start rates. In fact, of the 18 states with foreclosure start rates exceeding the national average, 13 were judicial. On the other hand, foreclosure inventories have been, and continue to be, higher in judicial states. For all judicial states, foreclosure inventory is 5.28 percent of outstanding mortgages; the non-judicial rate is 1.66 percent. Foreclosure inventory was highest in Florida (9.48 percent), New Jersey (8.28 percent), and New York (6.34 percent), although Brinkmann points out that Florida's inventory declined over the quarter, while New Jersey's and New York's increased. With delinquencies and foreclosures approaching pre-crisis levels, Brinkmann said, "We're back to the point where it's underlying economic factors impacting the market." He explains that local economic growth and population movements will determine housing demand and mortgage performance. "Those areas with the weaker climates for economic growth will see home value and delinquency problems that are beyond the abilities of the mortgage industry and housing regulators to impact in a meaningful way," according to Brinkmann. REPORT: NEW WAVE OF DELINQUENCIES FROM ARM RESETS UNLIKELY Concerns of a new wave of problem loans caused by unsustainable rate resets on adjustablerate mortgages (ARMs) are largely unfounded, according to Lender Processing Services (LPS). LPS conducted an in-depth analysis of the outstanding hybrid ARM population and found that the majority—63 percent—have already reset from their initial rates. Of the remaining 37 percent that have yet to reset, three-fourths were originated in post-crisis years when lending criteria was tighter and most new loans went to borrowers with credit scores of 760 or above—an attribute that LPS says suggests they are less likely to default in any type of scenario. And even among those ARM loans with looming rate resets that originated during the bubble years—when underwriting criteria weren't nearly as strict—interest rates would need to rise a full 3 percent, or 300 basis points, for hybrid rates to increase, according to LPS. In fact, the company reveals in its latest Mortgage Monitor report that most of these borrowers will likely see their rates and their monthly mortgage payments decrease, not increase, when their loans reset. STAT INSIGHT 25 Months Time to resolve 60+ day delinquencies by repayment, modification, or short sale for bank servicers. 16 Months Time to resolve 60+ day delinquencies by repayment, modification, or short sale for nonbank servicers. Source: Fitch Ratings

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