Mortgage Bankers See More Foreclosures, But Fewer Delinquencies

The Mortgage Bankers Association released its fourth-quarter data today. As you might expect, the percentage of loans in foreclosure increased -- to 4.58%, from 4.47% in the third quarter. That's the bad news. The good news is that delinquencies declined to a seasonally adjusted percentage of 9.47% from 9.64% in Q3. Should we treat this data as a generally positive for housing's recovery? The MBA thinks so.

Foreclosures are a lagging indicator of housing market health, while delinquencies are a leading indicator. That's why the MBA thinks the decline in delinquencies should carry more weight than the increase in foreclosures. Jay Brinkmann, MBA's chief economist says:

"The continued and sizable drop in the 30-day delinquency rate is a concrete sign that the end may be in sight. We normally see a large spike in short-term mortgage delinquencies at the end of the year due to heating bills, Christmas expenditures and other seasonal factors. Not only did we not see that spike but the 30-day delinquencies actually fell by 16 basis points from 3.79 percent to 3.63 percent. Only three times before in the history of the MBA survey has the non-seasonally adjusted 30-day delinquency rate dropped between the third and fourth quarter and never by this magnitude. If the normal seasonal patterns hold for the first quarter, we should see an even steeper drop in the end of March data.

Let's hope he's right. But it can really only be interpreted as a good sign that delinquencies are declining. The big question is whether this trend will continue into future quarters.

As far as the states still suffering, Florida and Nevada continue to feel the most pain. Brinkmann also says:

"Florida continues to be the worst state in terms of delinquencies with 26 percent of Florida mortgages one payment or more past due as of December 31st. 20.4 percent of Florida mortgages are 90 days or more past due or already in the process of foreclosure. Nevada is the second worst state with 24.7 percent of its mortgages one payment or more past due and 19 percent 90 days or more past due or in foreclosure.

It's kind of incredible to try to imagine that one-out-of-four homeowners with mortgages in an entire state could be having trouble making their payments. But that's the reality Florida and Nevada both face. And what's even worse is that one-in-five have defaulted, which usually means those borrowers face losing their homes, unless they manage to modify their mortgages.

The conclusion I draw from this news is pretty straightforward. Things were still pretty awful last quarter in housing, but there's reason to be cautiously optimistic about the future.