Mortgage Default Update: Homeowners Staying in Homes Longer

More than 7.3 million home loans are in some state of delinquency or foreclosure, and there's no end in sight. That's because the number of homeowners who are 90 days or more delinquent jumped 9.2 percent in May 2010 over May 2009, according to the Mortgage Monitor Report from Lender Processing Services (LPS).

When you add that to the inventory of home foreclosures (3.18 percent), 12.38 percent of homeowners are at risk of losing their homes.

In 12 states the delinquency rate is even higher -- over 10 percent. These include Nevada (14.5 percent), Mississippi (14 percent), Georgia (12.3 percent), Florida (11.2 percent), Arizona (11 percent), California (10.8 percent), Rhode Island (10.6 percent), Tennessee (10.6 percent), Alabama (10.5 percent), Michigan (10.4 percent), Louisiana (10.3 percent), and West Virginia (10.3 percent).

The good news, if you can call it that, is that people in trouble are able to stay in their homes longer -- even if they do default on a mortgage.
Thanks to the backlog from the record-breaking foreclosure activity, people in trouble might stay in their homes 449 days -- starting from the time they are 30-days delinquent and ending at the foreclosure sale -- which is a new all-time high.

Banks are finally wising up and allowing more people to sell their homes using a short sale process rather than dragging their feet and waiting until they can foreclose. In March 2009 only 18,619 homes were sold using short sales. That number jumped 120.4 percent to 41,030 in March 2010. But even with that improvement, there were foreclosures on152,654 homes in March 2010 versus 90,695, an increase of 68.3 percent.

In the past two months more homes fell into a "worse" status. LPS found that two-and-one-half times as many loans rolled to "worse" status than "improved." The number of "delinquent loans that 'cured' [become current] declined for every category" except those greater than six months delinquent. LPS thinks the improvement in the six-months category can be credited to newly completed loan modifications.

LPS also found improvement in the success of mortgage modifications. While 19.4 percent defaulted again in just three months, in the fourth quarter of 2008. In the fourth quarter of 2009, the number of new defaults dropped to 6.4 percent.

So that may mean that the banks and the government have gotten better at finding mortgage modifications that work.

Lita Epstein has written more than 25 books, including "The 250 Questions You Should Ask About Avoiding Foreclosure."