Mortgage Delinquencies, Foreclosures Begin to Drop

NEW YORK (TheStreet) - The number of loans in distress is declining, in yet another positive sign for the housing market.

According to the Mortgage Bankers Association's National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four unit residential properties fell to a seasonally adjusted rate of 7.4% of total loans outstanding in the third quarter, a decrease of 18 basis points from one year ago.

Delinquent loans include loans that are at least one payment past due but on which foreclosure action has not yet begun.

The serious delinquency rate- percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.03%, down 28 basis points from the previous quarter and 86 basis points from the year-ago quarter.

Banks initiated fewer foreclosure actions during the quarter. The foreclosure starts rate at 0.9% is the lowest level since 2007. The total loans in the foreclosure process or the foreclosure inventory rate fell 20 basis points to 4.07 % in the third quarter from the second quarter. That is the largest quarterly drop since the survey began, although the rate is still elevated.

The nation's biggest banks including Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) are processing fewer foreclosures, opting instead for short sales and loan modifications as they meet their obligation under the $25 billion national mortgage settlement.

"Mortgage delinquencies decreased compared to last quarter overall, driven mainly by a decline in loans that are 90 days or more delinquent," observed Mike Fratantoni, vice president of research and economics at the Mortgage Bankers Association. "The 90 day delinquency rate is at its lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market."

Foreclosure rates in states that follow a judicial foreclosure process were still significantly higher than non-judicial states. While the foreclosure rate for judicial states decreased slightly to 6.6 percent, the foreclosure rate for non-judicial states showed a steeper drop to 2.4 percent.

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