By Mike Colpitts
Mortgage delinquencies increased during the second quarter of the 
year, but formal foreclosures saw a drop as a result of banking legal issues, problems related to the robo-signing scandal and other troubles, according to the Mortgage Bankers Association.
Default rates on mortgages covering one-to-four unit residential properties rose to 8.44% on outstanding loans during the period, the bankers’ survey found. Delinquencies were 12 basis points higher from the first quarter of 2011 but were down 141 basis points from year ago levels.
The percentage of loans in the foreclosure pipeline at the end of the second quarter was 4.43%, down 9 basis points from the first quarter. The decline in delinquencies is clearly related to legal issues associated with homeowners’ struggles to overcome foreclosure, most of whom are being denied mortgage modifications.
“The report is a compilation of good news and not-so good news,” said MBA chief economist Jay Brinkmann. “While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped. Mortgage delinquencies are no longer improving and are now showing some signs of worsening.”
Lingering high unemployment, topping the U.S. average of 9.1% in some regions, severe underemployment and corporate lay-offs of workers, including an announced 10,000 employees at troubled Bank of America hinders a recovery in the housing market.
However, foreclosure starts also saw a drop to their lowest level since the last quarter of 2007 to shed some positive news on the housing market. Foreclosure inventory rates also fell, hitting their lowest level since the third quarter of 2010, according to the bankers’ survey.
However, tempering that news is an increase in newly delinquent loans one payment past due, which are typically driven by job losses reflecting homeowners who are having trouble making mortgage payments. First time claims for unemployment insurance started the quarter at 385,000 but finished the quarter at 432,000, showing a steady increase in job losses.
The survey indicated that the bulk of foreclosures are concentrated in just a handful of states with Florida , Illinois, Nevada, New Jersey and New York accounting for 52% of the foreclosure inventory in the second quarter. RealtyTrac says that 70% of foreclosures are confined to 10 states.
“One of the reasons the percentage of loans in foreclosure in California [3.6 percent] is considerably lower than states like Florida [14.4 percent], New Jersey [8.0 percent], Illinois [7.0 percent] and New York [5.5 percent] is that California does not have a judicial foreclosure system,” Brinkmann said.