SoCal Mortgage Blog

The number of American households behind on mortgage payments hovered at its lowest level in nearly two years during the first quarter, but the number of borrowers in foreclosure stayed near record high levels, the Mortgage Bankers Association said on Thursday.

Separately, sales of previously owned homes declined in April, further underscoring the challenges facing a troubled U.S. housing sector that has limped along since home-buyer tax credits ended last summer.

The MBA reported that 12.8% of mortgage loans on one-to-four-unit homes were 30 days or more delinquent or in the foreclosure process as of March 31, representing more than 6.2 million households. That was down from 14% one year ago and 12.9% at the end of last year.

The number of borrowers that are seriously delinquent—meaning they have missed three or more payments—has now declined for five straight quarters.

"We're looking at a market on the mend. We're not healed yet but things are looking better than they did certainly in the year before," said Jay Brinkmann, the MBA's chief economist.

Still, the report underscored the fragility of those gains. After adjusting for seasonal factors, the report found that the number of newly delinquent loans ticked up slightly in the first quarter.

Meanwhile, the National Association of Realtors reported that existing home sales fell 0.8% in April from March to a seasonally adjusted annual rate of 5.05 million, a sign of a "very sluggish housing recovery," said NAR chief economist Lawrence Yun. The median sales price fell 5% to $163,700 from $172,300 a year earlier.

Inventory of homes for sale climbed at the end of April to 3.87 million. At the current sales pace, it would take 9.2 months to sell those homes, compared to an 8.3-month supply in March. A healthy level would be about six months.

High foreclosure inventories remain one of the biggest threats to a housing recovery, particularly in light of anemic demand. Nearly 2.2 million households are in foreclosure, according to the MBA survey.

"Anyone hoping for a sustained recovery in the housing market is not going to find it," said real estate professor Christopher Mayer of Columbia Business School. Given the heavy volume of foreclosures that tend to sell at discounted prices, "it's hard to predict anything but more declines in prices," he said.

Fannie Mae's chief economist Doug Duncan said rising gas prices and increased costs of loans from the Federal Housing Administration may be weighing on the overall real estate market. "All those small things can make for a significant percentage change," he said. "You just never know how they factor into buyers' perceptions."

Banks initiated fewer repossessions during the first quarter than at any time since the end of 2008, according the MBA data. The nation's largest banks have had to overhaul their foreclosure processes after signs that they were improperly preparing foreclosure paperwork last fall, which has sharply curtailed foreclosures in many states.

The data show how foreclosure inventories remain elevated largely as a result of a handful of states that have struggled to deal with a glut of foreclosures. Florida accounts for 24% of all loans in foreclosure for the country as a whole, and nearly one in seven borrowers in the state are in some stage of foreclosure.

The states with the biggest increases in foreclosure inventories—Florida, New Jersey, and Illinois—require banks to process foreclosures through courts.

California and Arizona have also faced unprecedented levels of soured loans, but foreclosure inventories are down from peak levels. Those states don't require foreclosures to move through the court system.

"You have to think regionally now, not nationally," said Fannie's Mr. Duncan. Judicial backlogs "will affect markets, particularly if they are not seeing strength in employment."

By: Nick Timiraos and S. Mitra Kalita