Home Mortgage Foreclosures Fall but Delinquencies Rise in Second Quarter

U.S. mortgage foreclosures fell in the second quarter for the first time in almost three years, after reaching record highs in the three previous quarters, a trade group said Wednesday.

But the news was not all good for consumers. Delinquencies increased in the second quarter as the job market struggled, suggesting that foreclosures may increase next quarter.

The Mortgage Bankers Assn. of America said Wednesday that, smoothing out seasonal differences, the percentage of residential mortgages in foreclosure at the end of the second quarter fell to 1.12% from the previous quarter’s 1.2%, a sign the economy may be improving.

The association also said a drop in interest rates sparked a rebound in mortgage refinancing requests after nine weeks of declines and boosted the overall number of applications Americans filed for mortgages last week.

The association’s seasonally adjusted gauge of overall mortgage requests rose to 771.8 for the week ended Sept. 5, up 22.8% from the previous week.

The reading is the highest in four weeks but still well below the record high of 1,856.7 in the last week of May.

“With mortgage rates decreasing for the first time in over two months, consumers are taking advantage of a dip in interest rates,” said Douglas Duncan, the group’s chief economist.

In another hopeful sign, the percentage of mortgages entering foreclosure during the second quarter fell to 0.32% from 0.37% the previous quarter.

“The worst of the recession damage is over,” Duncan said. But he warned that foreclosures and delinquencies may still edge higher in the third quarter.

At the end of the second quarter, the percentage of outstanding mortgages that were delinquent rose to 4.62% from 4.52% in the first quarter, in large part because of job losses, according to the group.

A weak job market may lead to higher delinquencies in the third quarter as well, Duncan said.

But with an accelerating economy the job market should improve, which should eventually lead to lower levels of delinquencies and foreclosures, the association said. Precisely when the job market will improve is subject to debate.

Mortgage delinquencies may have risen in the second quarter, but they were significantly lower than in previous economic downturns.

In the second quarter of 1991, for example, 5.20% of outstanding mortgages were delinquent. In the fourth quarter of 1982, that percentage was 5.74%.

The delinquency rate for the second quarter was lower than the same quarter in 2002, when it stood at 4.77%.

The association’s survey covers nearly 34 million loans.