Decline in Delinquent Mortgages: Are More Filing Bankruptcy or Just Walking Away?

The financial meltdown that led to the mortgage crisis has resulted in millions of foreclosures. Recent statistics, however, show that the tide might finally be turning.

The Mortgage Bankers Association (MBA) indicates that the number of homeowners behind on their mortgages fell recently by nearly a full percentage point, from 14.42 to 13.52 percent. The delinquency rate is the lowest since the beginning of the financial crisis in 2009 but still far above the pre-crash rate. Experts point to the falling number as an indication that the housing climate could finally be improving. The MBA maintains that delinquencies fell thanks to a slightly improving economy, more loan modification offers from financial institutions and fewer evictions.

Despite the good news, there are still problems on the horizon.

Foreclosures still remain above the two million mark and are expected to stay there through 2012. In addition, many of the new delinquencies are now prime loans, as opposed to the subprime loans that fueled the crisis.

The hike in prime loan foreclosures, which reached 36 percent in the third quarter, is unsettling. This is because it is yet another indication that unemployment remains high, and many people are unable to meet their minimum obligations. Housing values have also dropped, which makes it harder for people who have to sell to get rid of their real estate, especially if they are underwater (owe more on the mortgage than the property is really worth).

Foreclosures slowed after it was revealed that banks might not have kept the appropriate paperwork to prove chain of title. Some experts want to see a longer decline in the delinquency rate before being willing to call it permanent.