The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the second quarter was 2.75 percent, an increase of 28 basis points from the first quarter of 2008 and 135 basis points from one year ago.

The percentage of loans on which foreclosure actions were started during the second quarter was 1.08 percent, up 7 basis points from last quarter and up 49 basis points from one year ago on a non-seasonally adjusted basis. 

The seasonally adjusted total delinquency rate continues to be the highest recorded in the MBA survey.  The increase in the overall delinquency rate was driven by increases in the number of loans 90 or more days past due, primarily in California and Florida.  The 30 day delinquency percentage remains below levels seen as recently as 2002.

Once again this quarter, the rate of foreclosure starts and the percentage of loans in the process of foreclosure set new records.
The foreclosure starts rate differed greatly by loan type.  For prime loans, foreclosure starts on fixed rate loans were 0.34 percent, an increase of five basis points, while prime ARM foreclosure starts were 1.82 percent, a 26 basis point increase. For subprime loans, fixed rate foreclosure starts increased 27 basis points to 2.07 percent and subprime ARM foreclosure starts increased 31 basis points to 6.63 percent. FHA foreclosure starts decreased one basis point to 0.95 percent and VA foreclosure starts increased six basis points to 0.57 percent, all on a non-seasonally adjusted basis.
“The national foreclosure numbers continue to be driven by the hardest hit states continuing to get much worse. The increases in foreclosures in California and Florida overwhelmed improvements in states like Texas, Massachusetts and Maryland,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Economics.  “For the quarter, a majority of the states saw relatively little change one way or the other. California and Florida alone accounted for 39 percent of all of the foreclosures started in the country during the second quarter and 73 percent of the increase in foreclosures between the first and second quarters.”

Only eight states had rates of foreclosure starts that were above the national average: Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana, and Ohio.  The remaining 42 states plus the District of Columbia were below the national average.

“The other factor that continues to drive foreclosure rates is loan type,” continued Brinkmann.  “Subprime ARM loans accounted for 36 percent of all foreclosures started and prime ARMs, which include option ARMs, represented 23 percent.  However, the increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans.  Thus the foreclosure start numbers will likely be increasingly dominated increasingly by prime ARM loans.

California and Florida accounted for 58 percent of all prime ARM foreclosure starts in the second quarter and 78 percent of the increase in prime ARM foreclosure starts. The foreclosure starts rates on prime ARMs were 2.47 percent for California and 3.20 percent for Florida, versus the national median of 1.06 percent.  The foreclosure starts rate for subprime ARM loans in California was 9.5 percent and in Florida 9.1 percent, about double the national median rate for subprime ARMs.

 “Perhaps the question most asked these days is whether we are close to a bottom, in other words, when will delinquency and foreclosure rates begin to head down.  The simple answer is that the idea of a national bottom is somewhat meaningless.  Real estate markets are local and some markets are already improving.  For example, even Michigan, one of the worst hit markets in the country, has now gone three quarters with little to no increase in its rate of foreclosures.  Likewise, Massachusetts showed a very large drop in foreclosure starts, perhaps signaling a bottom.  Because of the sheer size of California and Florida, an improvement in the national numbers, whether delinquencies, home prices or any other measure, is unlikely until we see some turnaround in those two states,” Brinkmann said.

MBA reports seasonally adjusted and unadjusted numbers for the major mortgage performance indices.  30-day delinquencies exhibit the strongest seasonality, followed by 60-day and 90-day delinquencies.   For foreclosure starts, the difference between the seasonally adjusted and unadjusted numbers is normally only a few basis points (see chart at the end of the press release).  For the first time this quarter, the difference jumped to 11 basis points.  The reason is that with the fundamental changes in mortgage performance, seasonal adjustment models estimated in more benign environments can lead to questionable results and incorrect conclusions.  Since the fundamental factors now driving foreclosures clearly overwhelm any seasonal factors, the seasonally adjusted results for foreclosure starts are most likely misleading unless there is a major increase in the third quarter.

Change from last quarter (first quarter of 2008)

The seasonally adjusted delinquency rate increased 22 basis points for prime loans to 3.93 percent. The delinquency rate decreased 12 basis points for subprime loans to 18.67 percent, decreased nine basis points for FHA loans to 12.63 percent, and decreased 40 basis points for VA loans to 6.82 percent.

The foreclosure inventory rate increased 20 basis points for prime loans to 1.42 percent, and increased 107 basis points for subprime loans to 11.81 percent. FHA loans saw a 16 basis point decrease in foreclosure inventory rate to 2.24 percent, while the foreclosure inventory rate for VA loans increased nine basis points to 1.33 percent.

The non-seasonally adjusted foreclosure starts rate increased six basis points for prime loans to 0.61 percent, increased 18 basis points for subprime loans to 4.26 percent, increased six basis points for VA loans to 0.57 percent, and declined one basis point for FHA loans to 0.95 percent.

The seriously delinquent rate, the non-seasonally adjusted percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process.

Compared with last quarter, the seriously delinquent rate increased for all loan types, except FHA loans. The rate increased 36 basis points for prime loans to 2.35 percent, increased 143 basi