A new report from real estate data and analytics provider LPS shows U.S. delinquencies and foreclosures both dropped substantially in May compared with the year before, with increasing home prices driving the number of problem loans toward pre-crisis levels.
As the company first reported last month, delinquencies declined 12 percent in May compared to last year, dropping from 7.2 percent of all mortgages to 6.1 percent, the lowest level since 2008. Delinquencies declined 2.1 percent compared to April 2013. U.S. delinquencies peaked in January of 2010 at 11 percent of all loans.
As LPS Applied Analytics Senior Vice President Herb Blecher explained, much of the improvement is due a sharp decline in "new problem loans," that is, the rate of previously current loans entering delinquency.
"Though they are still approximately 1.4 times what they were, on average, during the 1995 to 2005 period, delinquencies have come down significantly from their January 2010 peak," Blecher said in a statement. "In large part, this is due to the continuing decline in new problem loans – as fewer problem loans are coming into the system, the existing inventories are working their way through the pipeline. New problem loan rates are now at just 0.73 percent, which is right about on par with the annual averages during 2005 and 2006, and extremely close to the 0.55 percent average for the 2000-2004 period."
A combination of increased home prices and tighter underwriting is helping keep a lid on problem loans. The delinquency rate for "prime" loans has dropped more than 50 percent from its 2010 peak. The percentage of underwater loans has also sharply declined, dropping to 7.3 million loans, or about 15 percent of the U.S. home loans, a decline of more nearly 50 percent year-over year, according to LPS.
"[N]egative equity appears to still be one of the strongest drivers of new problem loans, and – primarily buoyed by home price increases nationwide – that situation also continues to improve," Blecher said in a statement.
The percentage of distressed sales also dropped, making up approximately 23 percent of all sales year to date, the lowest level since 2008.
