Six years after the start of the foreclosure crisis, American homeowners are paying their mortgages like the housing crash never happened.
First-time delinquent home loans fell to 0.84% of the 50.2 million mortgages in March, the first month below 1% since 2007, before a wave of defaults led to the financial crisis, according to a report today by Lender Processing Services Inc. The rate of first-time defaults, defined as loans that went from performing to at least 60 days delinquent, peaked at 2.89% in January 2009.
The decline in new problem loans shows that the recovering U.S. economy, falling unemployment and rising home prices, combined with more than four years of banks’ tightening lending standards, are propelling the worst real estate crash since the Great Depression into the rearview mirror.
“Mortgage quality is improving rapidly,” Mark Zandi, chief economist for Moody’s Analytics Inc. said in a telephone interview from his office in West Chester, Pennsylvania. “Once we’re able to work through this last bulge of foreclosed property, which I think we’ll be able to do over the next 18 to 24 months, mortgage credit quality is going to look absolutely beautiful.”
Mortgages at least 30 days delinquent or in some stage of foreclosure fell to 5 million in March, down from a peak of 7.7 million in January 2010, according to Lender Processing Services, a real estate information service based in Jacksonville, Florida. That’s still more than double the 2.2 million non-current mortgages of January 2005, when the housing market was rising toward its peak.
Tight lending standards have made it harder for borrowers to obtain mortgages, helping drive down default rates while reducing the homeownership rate in the first quarter to 65%, the lowest since 1995.
The Federal Housing Administration, which offers loans to buyers with downpayments as low as 3.5%, has steadily raised its credit scores. In the third quarter of 2012, the most recent available, 97% of FHA borrowers had credit scores above 620 of a possible 850. In the last quarter of 2006, only 53% had a score above 620.
New mortgage default rates are highest among so-called “underwater” borrowers, who have negative equity because they owe more on their home than the balance of their loan, said Herb Blecher, senior vice president at LPS Applied Analytics.
The new default rate was 4% for borrowers who owe at least 50% more than the value of their home compared with 0.6% for owners with equity, according to today’s report.