Mortgage delinquencies rose in second quarter, trade group says

The nation’s slowly improving housing market hit another bump last quarter, with more borrowers missing payments amid continued high unemployment, a report from a trade group shows.

The Mortgage Bankers Assn., in a quarterly delinquency survey issued Thursday, said home loans with at least one missed payment but not yet in foreclosure increased in the second quarter to 7.58% of all mortgages. That’s up slightly from 7.4% in the first quarter.

A separate survey from foreclosure listing firm RealtyTrac Inc. said the number of homes going into foreclosure rose 6% in July compared with a year earlier, the third straight month of year-over-year increases.

That trend reflected the fact that last year many foreclosures were on hold as banks focused on cleaning up flawed processes for seizing homes after the “robo-signing” scandals.

The Mortgage Bankers Assn. survey said the quarter-to-quarter increase in delinquencies appeared to result instead from a fundamental change: The slowing of the economy’s recovery during the first half of the year.

Although in no way reversing the longer-term trend of declining delinquencies — the missed-payment rate was 8.44% a year earlier — the increase raised eyebrows at the lender group.

“It’s not the direction you would want to see,” Mortgage Bankers Assn. economist Michael Fratantoni said in an interview. The key determinant, he said, will be the job market, which has shown signs of improvement lately.

In a brighter sign, the percentage of loans in all stages of the foreclosure process, or at least 90 days past due, dropped to 7.31% in the second quarter from 7.44% in the first quarter and 7.85% a year earlier.

The slow decline in this “seriously delinquent” category shows that lenders are gradually working through the huge backlog of soured loans made during the housing boom, Fratantoni said.

Federal Housing Administration loans entering foreclosure were a notable exception. The percentage of loans in foreclosure soared to 4.23% in the second quarter to a record high. Foreclosure starts for FHA loans also increased to 1.53%, also a record high.

The increase was due to major lenders, particularly Bank of America Corp., starting up foreclosures on loans that had been delinquent but held up because of to the federal government’s investigations into faulty foreclosure practices, said Shaun Donovan, secretary of Housing and Urban Development, which oversees the FHA.

“We had a significant period of time where Bank of America was not starting foreclosures or completing foreclosures for FHA loans,” Donovan said in an interview with The Times. “What you are seeing is basically many, many months-long backlog of particularly Bank of America claims that are being submitted, and have caused artificially that rate to rise.”

“It doesn’t reflect an underlying trend overall for the broader portfolio,” he added.

The report confirmed signs that California, once the poster child for collapsing housing markets, is generally in recovery mode.

Across the nation, 4.27% of all home loans were in the foreclosure process at the end of the second quarter, the home lenders group said. In California, 3.1% of residential mortgages were in foreclosure.

That compared with 13.7% in Florida, 7.7% in New Jersey and 6.5% in New York, all states in which foreclosures are processed through the courts, resulting in huge legal entanglements. Most foreclosures in California are processed more quickly without judicial reviews.

Fratantoni said that with home prices rising again in many California markets, more struggling homeowners are finding it possible to sell their homes rather than see them taken away in foreclosures.

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