Bright spot for mortgages: Missed payments ease

NEW YORK (CNNMoney) -- Mortgage delinquency rates among U.S. homeowners have fallen to their lowest levels in a few years, according to a report Thursday from the nation's mortgage bankers.

The quarterly National Delinquency Survey from the Mortgage Bankers Association (MBA) reported that the rate of mortgage borrowers at least one payment past due or whose homes have been repossessed by their banks declined 0.22 point to 13.56% at the end of December, their lowest level since late 2008.

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Loans one payment past due were at 8.22%, down considerably from the 9.13% mark at the end of the third quarter and the lowest rate since the end of 2007, the beginning of the recession, the bankers said.

That, according to Michael Fratantoni, vice president of research and economics for the MBA, was very welcome news.

"I think we've turned the corner as concerned with loans 30 days late," he said. "It indicates that the economy has improved."

A second factor in the improvement is that mortgage underwriting has gotten so much stricter over the past few years, in the wake of the housing market collapse, that many of the loans most likely to fail have already done so.

The most dangerous years for mortgages are the third and fourth years, when delinquency rates peak, according to Fratantoni. The crop of mortgages entering into those dangerous years should not default as much because borrowers were so well qualified.

Another positive element in the report was that the percentage of seriously delinquent borrowers -- those 90 days or more late and considered very likely to lose their homes to foreclosure -- dropped precipitously over the last three quarters of the year, to 3.63% from 5.02% at the end of March 2010.

That should translate into far fewer borrowers losing their homes to foreclosure in the future.

Improvement in the economy, if it continues, should usher in a period of lower delinquency rates, according to Jay Brinkmann, the MBA's chief economist. The quarter's positive news was tied to the increase in hiring last year, when the private sector added about 1.2 million jobs.

"You need a paycheck to make a mortgage payment," Brinkmann said.

The biggest negative in the report was that the percentage of loans in foreclosure inventory hit an all-time high. These are loans in which the banks start to reacquire properties by scheduling auction sales.

Mortgages can exit this process by having the loan modified, the property sold through a short sale or transferred voluntarily to the bank, or sold at auction.

The MBA attributed the rise of loans in foreclosure inventory to the robo-signing issues that began to emerge in September. Banks deliberately slowed or suspended the foreclosure process, keeping them from exiting the category. That was especially true for states in which courts are involved in the process.

The delinquency rate was headed in the right direction even without adjusting for seasonal factors. Historically, the fourth quarter, explained Brinkmann, usually sees a jump in missed payments.

"In the fourth quarter, the first heating bill arrives and homeowners choose keeping the place warm," he said. "They make up the payments later."

This time, even the non-seasonably adjusted total past due rate dropped, from from 9.39% during the third quarter to 8.93% in the fourth. Brinkmann traced the gain the the improvement in the overall economy.

Of the states, Mississippi had the highest overall delinquency rate, with 13.3% of loans in some state of default. Nevada, at 12%, and Georgia, at 11.89%, also were very hard hit.

Florida, where the courts have substantially slowed the foreclosure process, has the highest percentage of loans in foreclosure inventory with 14.18% awaiting some kind of resolution. Nevada, at 10.06%, was second, and New Jersey, at 7.23%, was third.