Significantly fewer people fell behind on their mortgage payments during the final three months of 2010, a positive piece of news for the nation's housing market, according to an industry group.
But the number of homes in foreclosure remained at record levels, meaning that a large number of bank-owned properties still threaten to saturate the market, potentially threatening any recovery.
In California, the percentage of loans in delinquency and facing foreclosure also declined.
Among all outstanding U.S. mortgages, 8.22% of them were in some stage of delinquency when the data is adjusted to account for seasonal variances — meaning a borrower had missed at least one payment on the loan, according to the Mortgage Bankers Assn.
That rate represented a decline from 9.13% in the third quarter, and down from 9.47% in the fourth quarter of 2009.
"These latest delinquency numbers represent significant across-the-board decreases," said Jay Brinkmann, the association's chief economist. "While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner."
Unless the U.S. experiences a "significant economic reversal," the numbers should continue to improve through 2011, Brinkman said.
The delinquency rate does not include loans that are stuck in the foreclosure process. Financial institutions began foreclosure actions on 1.27% of all U.S. loans during the fourth quarter, a decrease from 1.34% in the prior quarter and up from 1.2% during the same period a year earlier.
A total of 4.63% of all U.S. loans were stuck in some stage of the foreclosure process at the end of the fourth quarter. That was an increase from 4.39% the prior quarter and 4.58% during the year-earlier period.
"We are going to see a lot of distressed sales," said Mark Zandi, chief economist for Moody's Economy.com. "This isn't over yet, and in my view this is probably the most significant threat to the economy right now."
A large number of foreclosures puts pressure on U.S. home prices, he said.
"When house prices are falling, it is hard to get completely enthusiastic about the economy," he said. "The home is still the most important asset people own. Small businesses use homes as collateral and local governments have to cut, because their property tax revenues are under pressure, it is the economy's biggest problem."
California's mortgage delinquency rate was 9.15% at the end of the fourth quarter, down from 9.84% in the third quarter and 11.34% in the fourth quarter of 2009. At fourth quarter's end, 4.48% of all home loans in the state were in foreclosure.