Mortgage delinquencies fall but foreclosures up sharply

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For the first time in two years, fewer homeowners are missing mortgage payments, Treasury Department regulators reported Wednesday, but foreclosures are surging as many loan-modification efforts fail.

Three years have passed since the mortgage debacle made most sub-prime and nontraditional loans unavailable, and most loans since have been ‘plain vanilla’ fixed-rate mortgages to prime-credit borrowers. The better-performing newer loans stand in contrast to the dicey old ones that finally are being flushed away for good.

The report raises the prospect of a new surge of foreclosed homes flooding the market at a time when home sales already are tumbling due to the expiration of federal tax credits for buyers.

Sales of new homes fell 33% last month to the lowest level on record, according to the U.S. Commerce Department. And a survey released Wednesday by the Mortgage Bankers Assn. said applications for home purchases and refinancings fell again despite the availability of the lowest fixed mortgage rates in more than a year.

On the bright side, the regulators’ first-quarter report on mortgages serviced by large national banks and thrifts said delinquency rates dropped in all categories, including the most default-prone sub-prime and alt-A loans. (Alt-A borrowers had decent credit scores but added risk factors; an alt-A borrower might have paid interest only at a fixed rate for the first five years with limited documentation of income and assets.)

According to the comptroller of the currency and the Office of Thrift Supervision, the percentage of mortgages that were current and performing increased for the first time since the agencies began publishing this report in June 2008. Delinquencies fell in all categories, from a single missed payment to 90 or more days of delinquency.

The numbers increased, however, in all foreclosure categories. Compared with the previous quarter, newly initiated foreclosures increased 19% to 370,536; foreclosures in process increased 9% to 1,170,874; and completed foreclosures increased 19% to 153,654.

The regulators attributed the increase to servicers having exhausted efforts to assist holders of troubled loans. Under the government and private loan-modification plans, lenders proceed with seizing and selling homes if foreclosure is the least costly option for banks or loan investors after all modification options are applied.

--E. Scott Reckard