Shadow Inventory Reaches 4.3 Million Homes

The delinquency rate for mortgages decreased from 10.44 percent in the fourth quarter of 2009 to 9.38 percent this quarter, but when adjusted for seasonal trends the rate actually increased 59 basis points from the fourth quarter of 2009 to a rate of 10.06 percent, and rose 94 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 9.54 percent, decreased slightly from last quarter, but rose 230 basis points from the first quarter of last year.

The large number of homes in serious delinquency, or in the foreclosure process, suggest that the so-called “shadow inventory” of properties owned by lenders but not yet on the market has reached 4.2 to 4.3 million homes, said Jay Brinkmann, MBA’s chief economist.

“Overall, we see a continuation of the pattern of declines in short-term delinquency rates, at least on a non-seasonally adjusted basis, the continued historically high share of delinquencies that are 90 days or more past due, and a leveling off in the pace of foreclosures,” he said.

“The economy has begun to generate jobs and layoffs have declined, although new claims for unemployment insurance remained higher in the first quarter than we expected. The percent of loans behind one payment had been declining as first-time claims for unemployment began falling in March 2009. Those new claims stopped falling during the first quarter of this year, which likely halted the decline in the underlying 30-day delinquency rate. If mortgage delinquencies are not yet clearly improving, it also appears they are not getting worse. However, a bad situation that is not getting worse is still bad.

The seasonally adjusted delinquency rate increased for all loan types with the exception of FHA loans. On a seasonally adjusted basis, the delinquency rate stood at 6.17 percent for prime fixed loans, 13.52 percent for prime ARM loans, 25.69 percent for subprime fixed loans, 29.09 percent for subprime ARM loans, 13.15 percent for FHA loans, and 7.96 percent for VA loans. On a non-seasonally adjusted basis, the delinquency rate fell for all loan types.

The foreclosure starts rate increased for all loan types with the exception of subprime loans. The foreclosure starts rate increased six basis points for prime fixed loans to 0.69 percent, 17 basis points for prime ARM loans to 2.29 percent, 18 basis points for FHA loans to 1.46 percent, and eight basis points for VA loans to 0.89 percent. For subprime fixed loans, the rate decreased nine basis points to 2.64 percent.

Brinkmann noted that the geographic distribution of delinquencies is shifting. As unemployment rather than loan resets accounts for more and more delinquencies, the quarterly increases in delinquencies has shirted from the traditional high foreclosure “sand states” of ‘Arizona, Nevada and California to new sites like Oregon, Rhode Island, Maryland and Illinois.