Mortgage foreclosures “have clearly turned the corner”: MBA chief economist

Mortgage foreclosures “have clearly turned the corner,” said the Mortgage Bankers Association (MBA) chief economist Jay Brinkmann.

He said if the current trend of overall economic improvement continues, the downtrend on foreclosures should also continue.

Brinkmann noted that the economy did add 1.2-million private sector jobs in 2010 and that initial jobless claims applications fell in the second half of the year.

To be sure, foreclosures remain high on a historic basis. In the fourth quarter of 2010, the delinquency rate for mortgage loans on one-to-four-unit residential properties was 8.22 percent.

Compared to fourth quarter 2009 though, it dropped 1.25 percentage points. Loans 90 days or more past due have fallen from the all-time high rate of 5.02 percent in first quarter 2010 to 3.36 percent in fourth quarter 2010.

Although delinquencies dropped for all sorts of loans, the decrease was more notable for subprime loans compared to prime loans.

The turnaround of the mortgage foreclosure situation may help spur the healing process for the real estate market.

The foreclosure process dumps many houses on the market at fire-sale prices, thereby bloating the supply relative to demand and pushing down prices. Falling prices, in turn, dampen buying appetite.

So if the foreclosure situation were to continue to stabilize and improve as Brinkmann predicted, the housing market can begin to cut down on the foreclosure inventory and eventually fully heal.