Foreclosures and mortgage delinquencies declined significantly at the end of 2012, according to the latest report by the Mortgage Bankers Association.

That's certainly a sign that the housing market continues to recover, with the help of rising prices and the increase in home sales. But it's going to take at least two more years before delinquencies reach "normal" levels, says Michael Fratantoni, MBA's vice president of research and economics.

"For the foreclosure inventory rate, it may take longer," he says.

The national mortgage delinquency rate -- which includes home loans that are at least one payment past due but not in foreclosure yet -- fell to 7.09% in the fourth quarter of 2012, the MBA says. That's the lowest rate since the financial crisis of 2008. The rate was 7.58% during the same period in 2011.

Lenders also started fewer foreclosures in the last three months of 2012 than they did in the fourth quarter of 2011. The share of loans in foreclosure at the end of the fourth quarter was 3.74%, down from 4.38% a year earlier.

"We are seeing large improvements in mortgage performance nationally and in almost every state," says Jay Brinkmann, MBA's chief economist.
Problem states

But some states remain plagued by extremely high levels of foreclosures.

Florida has the highest percentage of loans in foreclosure in the country, followed by New Jersey, New York and Illinois. The four states have laws that require lenders to go through a judicial process before foreclosing on a home.

"The foreclosure process lingers much longer than in other states, and as a result, the foreclosure rate is much higher," Fratantoni says.

In Florida, where the average time to complete a foreclosure is about two years and four months, about 12% of all mortgages in Florida are in the process of foreclosure. That's down from a peak of 14.5% last year but still more than twice as high as the national average. Florida was one of the states hardest hit by foreclosures after the housing boom.

In the Miami metro area, including Miami Beach and Kendall, more than 16% of all loans are in foreclosure.

Most of the delinquencies in the pipeline today are a result of the loans issued during the boom, when many lenders didn't require much more than a pulse from borrowers to give them a mortgage.

Nationwide, more than half of the loans that were more than 90-days delinquent in the fourth quarter were taken out between 2005 and 2007. About a quarter of them were taken out prior to 2005.