Mortgage Default and Foreclosure Rates Nearly Normal

The Mortgage Bankers Association (MBA) reported in its National Delinquency Survey that mortgage loan delinquency and foreclosures continue to decline toward normal levels. The quarterly report indicates:

  • Delinquencies (past due bit not in foreclosure) on one-to-four-unit homes fell 62 basis points to 6.96 percent -- the lowest delinquency rate reported by the MBA since mid-2008.
  • The rate of new foreclosures fell from 0.70 percent to 0.64 percent. This is the lowest rate of new foreclosures since the first quarter of 2007.
  • Mortgages already in foreclosure in the second quarter of 2013 dropped to 3.33 percent, which is 22 basis points lower than for the first quarter of 2013 and 0.94 percent lower year-over-year.
  • Foreclosure starts either fell or were unchanged in 43 states, while the number of home loans in foreclosure either fell or was unchanged in 45 states.

Jay Brinkman, MBA's chief economist said that "For most of the country, delinquencies and foreclosures have returned to more normal historical levels." The survey indicates that some states hardest hit in the economic downturn have made significant recoveries; Florida's percentage of mortgages in foreclosure was 10.00 percent for the second quarter, down from 14.50 percent a year ago.

Judicial Mortgage Foreclosure Volume Higher

States with judicial foreclosure proceedings reported higher numbers of foreclosures; this is likely due to the additional time required to complete foreclosures through backlogged court systems. States with the highest backlogs of judicial foreclosures include Florida, New Jersey, New York and Illinois.

States using non-judicial or "power of sale" foreclosures have an average of 1.86 percent of single family home loans in foreclosure compared to an average of 5.59 percent of single family loans in judicial states.

Completion of foreclosure can also be delayed in states that have redemption periods; this means that a mortgage lender or third-party bidder at a foreclosure auction cannot take title to a foreclosed home until the redemption period, which gives homeowners time to redeem their homes from foreclosure, expires.

Regional Economies Impact Foreclosure Levels

While national foreclosure numbers for the second quarter are encouraging, state numbers vary depending on factors including regional economic conditions, housing markets and the type of foreclosure process used. New foreclosures in New York reached a record level during the second quarter, while foreclosure percentages in Connecticut hit near-record levels. New Jersey reported nearly as many loans in foreclosure as Arizona, California and Nevada combined; these three states have had significant recovery in their housing markets. Homeowners experiencing financial hardship have an easier time selling their homes (and avoiding foreclosure) where housing markets are rebounding.

Avoid Foreclosure When Buying a Home

Foreclosure probably won't cross your mind when you're looking for a new home, but it should. Smart decisions now can save you from having to make hard choices later.

  • Don't sign anything you don't understand.
  • Walk away from any lender who doesn't answer questions to your satisfaction.
  • Make sure that the application is accurate before you sign it, and never sign a blank document.
  • Choose an affordable home and mortgage -- just because you qualify doesn't mean you can afford it.
  • If you're a first-timer, take a home ownership class, It might get you a better deal on your mortgage, too.
  • Have a plan B in place. How will you pay your mortgage if you lose your job? What will you do if you can't sell your home when you plan to?

Most people who ended up in foreclosure during the recession were not hoodwinked by lenders or home sellers. Many were just unprepared for home ownership.

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