MBA Survey Shows 2002 3Q Delinquencies Down

January 7, 2003

And Foreclosures Flat Compared To Last Quarter

Washington, DC (January 7, 2003) - The 2002 3rd quarter National Delinquency Survey (NDS) released today by the Mortgage Bankers Association of America (MBA) shows that the number of homeowners who are delinquent with their mortgage payments dropped and that the number in the foreclosure process remained flat compared to the previous quarter.

"There's some good news in this survey. We believe that delinquencies have peaked and, as the economy continues its recovery, the housing market will continue to make its contribution," said Doug Duncan, MBA senior vice president and chief economist. "We believe going forward there will be fewer households facing the harsh economic reality of unemployment that helped to drive up delinquencies and foreclosures in the first two quarters of 2002. Certainly, that could change with any unforeseen circumstances, but all indicators are pointing toward a growing economy and ultimately an improving job market."

The seasonally adjusted delinquency rate1 for mortgage loans on one-to-four unit residential properties was 4.66 percent at the end of the third quarter of 2002. This represents a drop of 11 basis points from the second quarter and a drop of 17 basis points from the third quarter of 2001.

The decline in the total number of delinquencies was driven by a drop in the percentage of loans that were 30 days delinquent, from 3.20 percent in the second quarter to 3.06 percent. The 60-day delinquency percentage was unchanged at .79 percent and the percentage of loans 90 days or more past due increased from .78 percent to .82 percent.

For conventional loans, total delinquencies dropped from 3.10 percent in the second quarter of 2002 to 3.04 percent in the third quarter. FHA delinquencies decreased from 11.81 percent to 11.62 percent, and VA delinquencies decreased from 8.00 percent to 7.81 percent.

Due to the growth of the subprime market, generally, the number of subprime loans included in the survey's conventional loan category has, over time, begun to increase. MBA's 3rd quarter 2002 survey includes more than 34 million loans. As a percent of all loans in the survey, subprime loans increased from 1.8 percent to 3.6 percent over the last five years, while the FHA percentage of the total has fallen from 20.8 percent to 15.6 percent and the VA percentage has fallen from 9.4 percent to 5.6 percent.

Therefore, MBA has developed separate prime and subprime components for the conventional loan category, based on whether the results are reported by primarily prime or subprime loan companies. The results show that for prime conventional loans, the total delinquency rate fell from 2.64 percent in the second quarter to 2.54 percent in the third quarter. The prime conventional delinquency rate fell 32 basis points from a year earlier.

"The subprime breakout we are debuting today - while a very important look at the marketplace - is a snapshot, as it represents less than half the subprime market and includes some specialized firms. The separation of the conventional market provides clarity to prime activity," said Duncan. "We will, over the next few quarters, add more subprime reporting companies to provide our members with a more complete view of delinquencies and foreclosures in the subprime market."2

MBA's delinquency rate does not include loans in the process of foreclosure.3 The total percentage of loans in the process of foreclosure was 1.15 at the end of the 2002 third quarter, up from a revised 1.13 percent at the end of the second quarter. The percentage of loans that entered the foreclosure process during the third quarter remained essentially unchanged, dropping slightly from a revised .38 percent in the second quarter to .37 percent in the third quarter, on a seasonally adjusted basis. The 2001 third quarter was also reported at .37 percent.

The percentage of prime loans in the process of foreclosure remained the same at .51 percent from the second quarter to the third quarter, although it rose 6 basis points from the same quarter a year earlier.

  1. MBA defines delinquencies as mortgage payments that are anywhere from 30 to 90 or more days past due, but not in the process of foreclosure.

    In order to provide subscribers with expanded information in the NDS, MBA has taken steps to demonstrate the performance of the prime conventional segment of the mortgage market. This has led to the separation of the data between the prime loan servicers and subprime servicers and the separate reporting of the delinquency rates.

    The prime conventional data are broadly representative of the industry's performance and contain about 26 million loans. Therefore, the prime data may be cited as indicating industry, regional and state averages.

  2. The subprime data represents information from 13 companies including 1.2 million loans and are not considered representative of the total subprime market. Therefore, the subprime data should not be cited as representative of industry, regional and state averages. These data will be augmented with additional subprime company data in future quarters to make them more representative.

  3. Foreclosures in the NDS survey are defined as any loan in the foreclosure process.

Correction: Due to a changeover in the servicing system used by one of the larger reporting companies, the number of loans reported to be in foreclosure in 2Q 2002 was too high, primarily for FHA and VA loans. The correct total numbers are .85 versus .87 percent for conventional loans, 2.40 versus 2.79 percent for FHA loans, 1.49 versus 1.72 for VA loans, and 1.13 versus 1.23 for the entire sample. Corrected versions of the 2nd Quarter NDS will be mailed to all subscribers.

Source: Mortgage Banker Association

Contact ALTA at 202-296-3671 or [email protected].