US mortgage meltdown scenario improves

There are signs that the mortgage meltdown in the US, that started five years ago seems to be reversing course as the percentage of loans that fell into delinquency slowly returned to normal rates and fewer loans fell into foreclosure.

On a seasonally adjusted basis, 7.58 per cent of mortgage borrowers made belated payments of their loans during the last three months of 2011, the Mortgage Bankers Association (MBA) said. This was down 0.67 percentage points from 12 months earlier and 2.5 percentage points from the peak seen in the first quarter of 2010.

According to Mike Fratontoni of the MBA's vice president for Single-Family Research and Policy, that was a pretty substantial decline. He added it was round halfway back from the peak.

Jay Brinkmann, chief economist at the MBA said, the improved mortgage performance reflected continued improvements on the jobs front and in the broader economy.

He added the 0.28 percentage-point decline in loans on which foreclosure actions were started in the fourth quarter was a good predictor of fewer future bank repossessions. Foreclosure starts were down to below 1 per cent, during the quarter, which was a healthy decline from the 1.4 per cent peak logged in the third quarter of 2009 and significantly closer to the long-term average of slightly under 0.5 per cent, he added.

But for the forces that kept mortgages in the default process longer, the delinquency numbers could have been even better. Due to the robo-signing scandal, banks had taken greater pains to ensure proper paperwork, which meant that many loans had got stuck in the foreclosure pipeline longer, boosting the rates of delinquency.