Residential Mortgage Delinquencies Continue to Fall While Foreclosures Increase Slightly According to MBA's National Delinquency Survey
March 12, 2004
The fourth quarter 2003 National Delinquency Survey (NDS) released today by the Mortgage Bankers Association (MBA) shows that the seasonally adjusted (SA) delinquency rate for mortgage loans on one-to-four-unit residential properties fell 4.49 percent in the fourth quarter 2003, down 16 basis points from 4.65 percent in third quarter 2003. The foreclosure inventory percentage at the end of the fourth-quarter was 1.29 percent, five basis points higher than the third-quarter rate of 1.24 percent, while the SA percentage of new foreclosures increased one basis point from 0.44 percent in the third-quarter to 0.45 percent in the fourth-quarter.
The MBA has revised its historical delinquency rate series to make it consistent with the increased number of subprime loans now in the survey. The revised series shows that overall mortgage delinquencies are at their lowest level since the second-quarter of 2000 when the rate was 5.51 percent.
The percentage of loans in foreclosure, while up from the third quarter, is down from the 1.51 foreclosure inventory percent one year ago and the high of 1.54 percent in the. first quarter of 2002.
"As the economic recovery continues, delinquency rates are declining from their post-recession peaks and the combined levels of home purchases and increases in home prices are evidence of a fundamentally sound housing market" said Doug Duncan, MBA's senior vice president and chief economist.
For prime loans, the SA delinquency rate fell five basis points from 2.45 percent in the third-quarter to 2.40 percent in the fourth-quarter. During the fourth quarter, the percentage of prime loans in foreclosure registered a two basis point increase from 0.53 percent to 0.55 percent, while the percentage of prime loans that entered the foreclosure process during the quarter was 0.20 percent, unchanged from the previous quarter.
Among subprime loans, the SA delinquency rate declined 110 basis points (12.69 percent to 11.59 percent) during the fourth-quarter. At the end of the fourth-quarter, the foreclosure inventory percentage was 5.63 percent, down from 5.74 in the third-quarter. The SA percentage of subprime loans on which foreclosures were started during the fourth-quarter increased 22 basis points.
The SA delinquency rate for FHA loans increased ten basis points, rising from 12.13 percent in the third quarter to 12.23 percent in the fourth quarter. The percentage of FHA loans in foreclosure registered a 13 basis point increase, going from 2.80 percent to 2.93 percent,whereas, the percent of loans entering the foreclosure process during the quarter decreased seven basis points from 0.98 percent to 0.91 percent. The percentage of FHA loans in foreclosure is a record high, as it was in the third quarter.
Based on the revised data, this marks the first time that FHA total delinquency rates are clearly above those for subprime loans. FHA delinquencies exceeded those for subprime loans in the 30, 60 and 90-plus day delinquency categories, while the percentages of foreclosures started and foreclosure inventory remained higher for subprime loans.
During the fourth quarter, delinquency rates decreased in all four Census regions. The delinquency rate decreased 30 basis points to 4.57 percent in the North Central, 32 basis points to 5.42 percent in the South, 17 basis points to 3.04 in the West, and 29 basis points to 3.99 percent in the Northeast region. One subprime company was not able to provide a geographic breakdown of its portfolio so the regional declines are slightly higher than the national decline.
Foreclosure inventory rates saw slight changes across all four Census regions as compared with the third quarter rates. The percentage of loans in the process of foreclosure increased two basis points to 1.31 percent in the Northeast and 1.38 percent in the South, remained steady at 1.75 percent in the North Central, and decreased two basis points to 0.68 in the West.
Across all Census regions the percentage of loans entering the foreclosure process saw moderate changes during the fourth quarter. Compared to the third quarter, the SA percentage of loans entering the foreclosure process decreased three basis points (0.32 percent to 0.29 percent) in the West and two basis points (0.52 percent to 0.50 percent) in the South, while increasing two basis points (0.36 percent to 0.38 percent) in the Northeast and three basis points (0.53 percent to 0.56 percent) North Central regions.
The fourth-quarter release of the National Delinquency Survey (NDS) marks a shift in the MBA's time series of total loan and conventional loan statistics due to a significant increase in the number of subprime loans in the sample. The 3.1 million subprime loans included in the fourth-quarter results, more than double the number in previous quarters, is the result of an effort to provide representative information on this important segment of the mortgage industry. The MBA has long known, however, that increasing the number of subprime loans in the sample would inflate total delinquency and foreclosure percentages relative to the historical NDS time series, resulting in confusion for those not aware of the change in the sample composition.
Two steps have been taken to place these new numbers in proper historical context. First, the report cites summary results with and without the additional subprime loans for the fourth and third-quarters so that readers can see the magnitude of the inclusion of the additional subprime loans. Second, the historical time series of delinquencies and foreclosures for all loans and conventional loans has been restated going back to 1998 based on the fourth-quarter composition of prime and subprime loans. Perhaps more importantly, the report continues to include separate statistics for prime and subprime loans, with the subprime results now representative of the subprime market.
The impact of doubling the number of subprime loans in the sample can be seen in the following example. As mentioned above, the inventory of loans in foreclosure increased to 1.29 percent at the end of the fourth-quarter from 1.24 percent at the end of the third-quarter. If new subprime loans are excluded for both quarters, the inventory of loans in foreclosure increased to 1.17 percent from 1.12 percent, the number reported in the third-quarter NDS report. It is incorrect to say that the inventory of loans in foreclosure increased to 1.29 percent from 1.12 percent. In addition, while the percent of loans in the process of foreclosure is higher than ever reported in the NDS, it does not constitute a new record due to the significant change in the sample composition. Throughout this press release, third-quarter, 2003 and fourth-quarter, 2002 statistics have been revised based on the new sample composition.