Delinquency Rates Climb Mainly In Four States

The Mortgage Bankers Association (MBA) National Delinquency Survey released results on mortgage delinquencies and foreclosures for the second quarter of 2007 yesterday. At the end of the quarter 5.12 percent of all mortgage loans for one-to-four-units residential properties were delinquent. This is 73 basis points higher than the figure for the second quarter 2006 and 28 basis points higher than the first quarter of this year.

In addition to delinquent loans another 1.4 percent of all loans were in the process of foreclosure. This is 12 basis points higher than last quarter and 41 basis points higher than at the same point last year.

Loans entering foreclosure (usually after being delinquent for 90 days but this can differ company to company and state to state) were doing so at a rate of 0.65 percent of outstanding loans on a seasonally adjusted basis. This was 7 basis points higher than last quarter and 22 basis points above the rate one year ago. It was also the highest rate for loans entering foreclosure since the survey began in 1953. The last record high was set in the first quarter of this year.

Nationally the situation is not as dire as these figures would indicate. The figures are being driven by what is happening in a few large states and by adjustable rate mortgages, both prime and subprime.

According to Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development, "The percent of mortgages in Ohio that are 90 days or more past due or in foreclosure is still more than twice the national average and 1% of all of the mortgages in Michigan had foreclosure actions started on them during the last quarter, essentially the same rate as during the last quarter (sic). Problems are still significant in the nearby states of Indiana, Illinois, Kentucky, Tennessee and Pennsylvania. While Michigan's problems continue to escalate, however, Ohio's have shown signs of leveling off, albeit at a high level.

"What continues to drive the national numbers, however, is what is happening in the states of California, Florida, Nevada and Arizona. Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings. Thirty four states had decreases in their rates of new foreclosure(s) and the increases were very modest in the states with increases, other than those four," Duncan said.

Duncan said that there are other factors operating in those four states that will probably make things even worse.

Home prices are declining which is making it difficult to refinance ARMS, especially if the homeowner had opted for a high loan to value mortgage (such as nothing down) at the onset of the loan. Home prices have dropped in all four of the states and 52 of the 59 Metropolitan Statistical areas in those states were on the list of those showing a drop in prices in the recent Office of Federal Housing Enterprise Oversight second quarter report that came out last week.

The Western Region which is home to three of the four states has a record-high inventory of homes and Florida also has a glut of property for sale. The three Western states also have a disproportionate share of homes that are owned by investors and at the end of the second quarter the percentage of mortgage loans for non-owner occupied homes that were 90 days or more past due or in foreclosure was 32 percent in Nevada, 26 percent in Arizona, and 21 percent in California. Florida was running at 25 percent. The rest of the nation had an investor foreclosure rate of 13 percent.

"In addition," Duncan said, "there is a clear divergence in performance between fixed rate and adjustable rate mortgages due to the impact of rate resets. While the seriously delinquent rate for prime fixed loans was essentially unchanged from the first quarter of the year to the second, and the rate actually fell for subprime fixed rate loans, that rate increased 36 basis points for prime ARM loans and 227 basis points for subprime loans.

"What is not clear, however," Duncan said, "is whether subprime ARM loans are causing the problems for California or whether California is causing the problems for subprime loans. California has 17 percent of the subprime ARMs in the country and over 19% of the foreclosure starts on subprime ARMs. The four states of California, Florida, Nevada and Arizona have more than one-third of the nation's subprime ARMs, more than one-third of the foreclosure starts on subprime ARMs, and are responsible for most of the nationwide increase in foreclosure actions.

"Therefore, the problems in these states will continue, and they will continue to drive the national numbers, but they do not represent a national problem," Duncan said.

Since last quarter the seasonally adjusted delinquency rate increased 15 basis points during the second quarter for prime loans (from 2.58 percent to 2.73 percent) and 105 basis points for subprime loans (from 13.77 percent to 14.82 percent). FHA loans had a delinquency rate that increased from 12.15 percent to 12.58 percent while VA loans decreased 34 basis points to 6.15 percent. Year over year seasonally adjusted delinquencies rate increased for prime (44 basis points), subprime (312 basis points), and FHA loans (13 basis points.) The delinquency rate decreased 20 basis points for VA loans.

The foreclosure inventory rate for prime loans increased from 0.54 percent to 0.59 percent and from 5.10 percent to 5.52 percent for subprime loans. FHA loans decreased four basis points to 2.15 percent, while VA loan inventories decreased three basis points (from 1.05 percent to 1.02 percent). Since the second quarter of 2006 the foreclosure inventory rate increased 18 basis points for prime loans and 196 basis points for subprime loans and decreased five basis points for FHA loans and eight basis points for VA loans.

The rate at which loans were entering foreclosure in the second quarter was 0.65 percent compared to 0.58 percent in the first quarter. By loan type, foreclosure starts were up two basis points for prime loans (to 0.27 percent), 29 basis points for subprime loans (from 2.43 percent to 2.72 percent). The foreclosure start rate decreased 11 basis points for FHA loans (from 0.90 percent to 0.79 percent) and four basis points for VA loans (from 0.41 percent to 0.37 percent). Foreclosure starts increased 22 basis points overall since the second quarter of 2006; nine basis points for prime loans, 93 basis points for subprime loans, four basis points for FHA loans, and two basis points for VA loans.

Seriously delinquent loans (the non-seasonally adjusted percentage of loans that are 90 days or more delinquent or in the process of foreclosure) increased from both last quarter and last year. This measure is designed to account for differences among companies as to when a loan enters the foreclosure process. During the second quarter, the seriously delinquent rate increased to 2.47 percent from 2.23 percent. The rate increased nine basis points for prime loans (from 0.89 percent to 0.98 percent), 94 basis points for subprime loans (from 8.33 to 9.27 percent), decreased eight basis points for FHA loans to 5.18 percent, and decreased 10 basis points for VA loans (from 2.45 to 2.35 percent). Since the second quarter of 2006 the seriously delinquent rate was 23 basis points higher for prime loans and 304 basis points higher for subprime loans. The rate decreased 22 basis points for FHA loans and 18 basis points for VA loans.