Southeast Mortgage Performance Continued to Improve in the Fourth Quarter

The Southeast improved over the past year in every major mortgage delinquency and foreclosure category. Recently released LPS Applied Analytics data for fourth quarter 2011 revealed that Sixth District states (Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee) built upon the collective progress made during the third quarter.

Total past due first mortgages in the region, for example, fell from 17.2 percent in December 2010 to 16.3 percent in December 2011. More notably, seriously delinquent loans—which include first mortgages in foreclosure and 90-plus-days delinquent—decreased from 11.8 percent in December 2010 to 11.4 percent in December 2011. Foreclosure rates dropped from 7.5 percent to 7.3 percent on a year-over-year basis.

Among delinquent mortgages, 30-day rates showed the most improvement since December 2010, falling from 3.8 percent to 3.5 percent in December 2011. Ninety-plus-day rates, however, were not far behind (see chart). The nation as a whole followed a similar pattern, with rates year over year also falling in every category.

Comparing Sixth District Mortgage Performance,
Fourth Quarter 2010 to Fourth Quarter 2011

Despite the District's overall positive trends as compared to the fourth quarter of 2010, only Georgia and Tennessee improved on the individual state level in every category tracked. Louisiana experienced a slight uptick in 30-day delinquency rates, rising from 4.5 percent in 2010 to 4.6 percent in 2011. Alabama saw an increase in 90-plus-day delinquencies (3.7 percent in 2010 compared to 3.9 percent in 2011) while Florida saw an increase in foreclosures (12.5 percent in 2010 versus 12.6 percent in 2011). Mississippi, meanwhile, continued to experience increases in every category other than 60-day delinquencies.

Mississippi Struggles with Mortgage Delinquencies, Foreclosure Rates Increase
Amid a gradually improving housing market, Mississippi stands out in the region as a state that continues to struggle with mortgage delinquencies. The following table compares Mississippi's delinquency rates to both the Sixth District and the U.S. average, as of December 2011:

Comparing Mississippi Trends to the Sixth District and the United States, December 2011

As of December, Mississippi was second in the nation, after Florida, for the rate of mortgages past due at 16.7 percent. Mississippi led the nation with a 30-day delinquency rate of 5.9 percent in December 2011, and the state's 90-plus-day delinquency rate of 5.3 percent is second only to Nevada (6.7 percent). Mississippi has produced relatively high delinquency rates for an extended period of time. In early 2011, Mortgage Bankers Association (MBA) chief economist Jay Brinkman said, “If you go back to 2005, the pre-Katrina period, Mississippi ranked among the highest delinquency rate." Despite that long-standing problem, analysts have struggled to pinpoint the primary factors. "We don't have any clear explanation for what is going on,” acknowledged Mike Fratantoni, the MBA's vice president for single-family research.

According to the Associated Press, in December Mississippi claimed the fourth-highest unemployment rate in the United States, to which many observers often attribute the delinquency problem. While the nationwide unemployment rate fell from 8.7 percent last November to 8.5 percent in December, the rate in Mississippi fell only from 10.5 percent in November to 10.4 percent in December. Worse yet, economists attributed the decrease to Mississippi residents who simply left the labor force.

Still, the state's high delinquency rates are not matched by the foreclosure rates. As of December 2011, Mississippi ranked 14th in the nation for foreclosures at 3.4 percent.

Seth Shannon, an attorney at the Mississippi Center for Justice, posited reasons for how the state has avoided high foreclosure rates despite delinquency trends. First, he suggested that the brevity of the Mississippi foreclosure process, which requires only three weeks notice before a foreclosure sale is conducted, may account for the discrepancy between the delinquency and foreclosure rates. The short process likely keeps the statewide foreclosure rate low relative to states with longer processes.

Shannon's assertion is supported by the data. According to the Mortgage Bankers Association's National Delinquency Survey, Mississippi's foreclosure starts rate of 1.2 percent exceeds the nation's (around 1 percent) and is not far below that of more well-publicized foreclosure-ridden states like Nevada (1.4 percent) and Florida (1.7 percent).

Shannon also noted that Mississippi has relatively low property values compared to other states in the region, which he suggests may delay servicer actions to begin the foreclosure process, as they continue to manage loans and foreclosures in other states. Still, foreclosure rates in Mississippi have steadily increased since mid-2008.

By Kevin Mahoney, research assistant, Federal Reserve Bank of Atlanta's community and economic development department.

Note: Unless otherwise noted, all data is from LPS Applied Analytics.