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Quality home loans drop delinquency

By Greg McBride, CFA · Bankrate.com
Thursday, August 9, 2012
Posted: 9 am ET

On Wednesday, Greg McBride, CFA, Bankrate's senior financial analyst, appeared on KCBS Radio in San Francisco to discuss the state of the housing market. Here's an edited transcript of the conversation with KCBS anchor Rebecca Corral.

Rebecca: The percentage of U.S. homeowners who are behind on their mortgage payments hit a three-year low in the second quarter of this year. That's according to an analysis of consumer credit data by TransUnion. The credit reporting agency says 5.49 percent of the nation's mortgage holders were behind on their payments by 60 days or more in the April to June period. That's the lowest level since the first quarter of 2009.

For some reaction and analysis, we're joined live on the KCBS Newsline by Greg McBride. He is a senior financial analyst at Bankrate.com. Thanks for your time this morning. So what does it really mean? Does it mean more people are employed, or people are managing their finances better? What does this signal?

Greg: It's a couple of things, Rebecca. First is that we're working through this backlog of previous delinquencies and foreclosures coupled with the fact that loan qualification guidelines have been stronger these past few years, and so the quality of loans that have been done in recent years is better. Fewer of those loans are going delinquent. The delinquency rate is poised to improve even further as time goes on as long as the economy doesn't completely roll over.

Rebecca: Do you have the sense that a lot of the people who were in bigger trouble in 2009 were able to refinance or gracefully get out of their homes without losing everything?

Greg: Either that, or they did lose it through foreclosure, and those who have been flushed out of the system have been coupled with the better quality of loans that have been originated since then. That has helped bring the delinquency rate down. We have to put it in the context, though, that the lowest since the first quarter of 2009 still means delinquencies are at pretty high levels. In the first quarter of 2009, we were well into the throes of this real estate crisis, so there's a lot of improvement that still needs to be seen.

Rebecca: Right, TransUnion says that the decline itself is actually not that fast. Could we run two graphs together then: the graph of home prices and where they've been over the past couple of years, especially in the last year or six months, and run that together with the foreclosure rates?

Greg: Yes, there's a strong correlation between the two in the sense that what started out as a foreclosure crisis helped bring the prices down, and the further the prices fell, the more people fell into foreclosure. It just spiraled together. Now, with home prices bottoming in many parts of the country -- and there has been a lot of strength in home prices in the Bay Area -- you're seeing those delinquency rates really drop off. The situation we're in now is that you have more demand for homes than you do supply on the market and that has provided a little lift to prices here in the past few months.


Rebecca: Overall in California, how are we doing?

Greg: The delinquency rate was down very sharply in California -- from 7.8 percent last year to 6.1 percent this year. That's a significant improvement. California is one of those states that's doing a better job of working through that backlog of foreclosures, and as a result, you're seeing that bear fruit in terms of the continued decline in the delinquency rate.

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4 Comments
Jayson
August 28, 2012 at 12:48 am

I have to say that I predicted some of this was going to happen. At a certain point there can only be so many foreclosures left, and the housing market had to bottom out to get to a place where we were going to be able to afford new homes, as well as pay on existing mortgages. Luckily not all states allowed adjustable mortgage rates, so home markets in those states probably started to recover well before other states. Still, we can hope that this news bodes well for the entire housing market.

L
August 14, 2012 at 4:30 pm

We are in the same boat.... Can't get any relief,Current Mtg rates are too high and that causes high payments. Plus, we have a second. If you get any info,please pass on to us.We are getting real close to trouble.....

Southwest Direct Mortgage
August 10, 2012 at 1:05 am

It's so encouraging to read this because it finally shows how the housing market is finally making headway since the major blow a few years ago. There will always be people who won't fit the description here, but the good news is that more people are able to afford their mortgage and more people are getting loans because of that. Thanks for the great post!

Cat Dancin’
August 09, 2012 at 11:28 am

I don't understand why we homeowners who do not have Fannie or Freddie and are underwater can't be given some relief! We are secure in employment, never late on any payments of any kind...EVER. Yet we can't refinance anywhere? Does anyone know of any banks that might refinance us to a lower rate if we're not gov't-loan? Help please!