Narrow Foreclosure Improvement, Broad Decline

In order to interpret trends in mortgage payments, one must look at the overall movement, and I'm not sure the content of this article by Paul Edward Parker merits the the talk of recovery that the front-page headline initiates:

In Rhode Island, the association reported that 11.09 percent of all mortgages were one or more payments behind in the fourth quarter. That’s an increase from the third quarter, when 10.25 percent were behind. ...

But those numbers break down to show a substantial increase in the mortgages three or more payments behind and a modest decrease in those only one payment behind.

Mortgages three or more payments behind went to 5.41 percent in the fourth from 4.45 percent in the third quarter. At the same time, those one payment behind fell to 3.82 percent from 3.93 percent.

Comparing the two quarters, both the total number of mortgages in foreclosure at the end of the quarter and the number that entered the foreclosure process during the quarter dropped.

The number in foreclosure fell to 3.97 in the fourth quarter from 4.05 percent in the third quarter.

Those starting the process fell to 1.15 in the fourth quarter from 1.34 percent in the third quarter.

There are two significant gaps in information, here: First, we don't know what percentage of Rhode Island mortgages are two months delinquent. Second, states, banks, and individual agreements and circumstances vary the number of months that the average homeowner can fall behind before entering foreclosure, and I don't know whether the cited percentages continue to count folks in foreclosure as still being delinquent. (The report itself is way too expensive to justify satisfying my curiosity.)

That noted, the reality is that a borrower must be one payment behind before being multiple payments behind, so the above data suggests a plateau, at best... rather, it suggests an approaching plateau, at best. Overall, an additional 0.84% of all mortgages fell behind in payments, from the third quarter to the fourth quarter. Putting the trends in order, the percentage of all mortgages at one payment delinquency dropped 0.11 points; the percentage three or more behind increased 0.96 points; the percentage entering foreclosure fell 0.19 points; and the percentage actually in foreclosure fell 0.08 points.

Assuming that foreclosures and payments in full haven't wiped out so many mortgages as to affect this data substantially, since the total number of delinquencies went up while the one-month category decreased, delinquencies can only be moving in the wrong direction. People aren't catching up on their payments, they're falling farther behind. The decrease in both new foreclosures and total foreclosures could mean two things, neither of which indicates a recovery: banks could be allowing longer delinquencies before initiating foreclosure or the market is simply between two waves of them.

The ideal trend would be to see an overall decrease in delinquencies at the same time as the number of households that are one payment behind goes up. That would mean that folks are making headway against the hard economic times. Of course, it would also mean that more people are working and making more money, and we'll have evidence of that before the mortgage market tells us anything of note.