Mortgage delinquencies ease, but foreclosure inventory high

While the number of delinquent mortgages continues to decline, the inventory of foreclosed homes is 30 times the volume of foreclosed sales each month, according to a new report.

The February Mortgage Monitor report released by Lender Processing Services of Jacksonville, Fla., shows 4.15 percent of the homes in the United States were in foreclosure Feb. 28, down from 4.16 percent Jan. 31. The rate of delinquent mortgages edged down to 8.8 percent from 8.9 percent at the end of January.

In Iowa, 3 percent of the homes in the state were in foreclosure at the end of February, unchanged from the previous month. Lender Processing Services reported that 5.8 percent of Iowa mortgages were delinquent on Feb. 28, down slightly from 6 percent at the end of January. Another 8.8 percent of Iowa mortgages were 90 days or more past due at the end of last month, down from 9 percent on Jan. 31.

Lender Processing Services said the high rate of foreclosures compared with monthly volume of foreclosed home sales indicates the backlog of foreclosed homes will continue for some time.

Ultimately, these foreclosed properties will most likely re-enter the market as real estate owned by banks and mortgage companies, putting even more downward pressure on U.S. home values.

Lender Processing Services said the February data also showed a 23 percent increase in Option adjustable rate mortgage foreclosures over the last six months, far more than any other product type. In terms of absolute numbers, Option ARM foreclosures stand at 18.8 percent, higher than any level reached by subprime foreclosures.

Option ARMs were created in 1981 and for years were marketed to wealthy homebuyers who wanted the option of making low payments most months and then paying off a large amount all at once. As the monthly payments for standard adjustable rate mortgages began to rise, banks began marketing the Option ARMs with their lower initial payments to more borrowers.

Many of the Option ARMs taken out in 2004 and 2005 began resetting at much higher payment schedules, often to the astonishment of people who thought the low installment payments were fixed for at least five years. At the same time, home prices began leveling off, eliminating the chance to have enough equity to pay off the mortgage.