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Mortgage Bankers Report Higher Foreclosure Rate

September 14, 2006

The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 4.39 percent in the second quarter of 2006, down 2 basis points from the first quarter, and up 5 basis points from one year ago, according to MBA’s National Delinquency Survey. 

Delinquency rates for prime, subprime, and FHA loans increased on a seasonally adjusted basis relative to the first quarter. The decline in the overall delinquency rate was driven by significant decreases in the delinquency rate for loans in the “90 days or more” past due category, particularly in Louisiana and Mississippi. 

The percentage of loans in the foreclosure process was 0.99 percent at the end of the second quarter, an increase of 1 basis point from the first quarter of 2006, while the SA rate of loans entering the foreclosure process was 0.43 percent, 2 basis points higher than the previous quarter. Compared with the second quarter of 2005, the percentage of loans in the foreclosure process was down 1 basis point while the percentage of loans entering the foreclosure process was up 4 basis points. This quarter’s NDS results cover over 42.5 million loans (32.4 million prime loans, 5.7 million subprime loans and 4.4 million government loans).

“The economy and housing market decelerated in the second quarter of 2006. Although labor markets remain strong, the pace of job growth has slowed, as has the home price appreciation rate which has decreased in response to higher interest rates and rising inventories of unsold homes. In fact, some states experienced home price declines in the second quarter,” said Doug Duncan, MBA’s chief economist and senior vice president of research and business development.

“In previous quarters we indicated a number of factors including the aging of the loan portfolio, increasing short-term interest rates, and high energy prices have been putting upward pressure on delinquency rates. To this point, generally healthy economic growth and labor markets have kept delinquency rates from rising. However, we are seeing increases in delinquency rates for subprime loans, particularly for subprime ARMs. It is not surprising that subprime borrowers are more susceptible to these changes.” 

“Going forward we expect some further slowing in the economy and the housing market. As a result, we will see modest increases in delinquency and foreclosure rates in the quarters ahead,” said Duncan. 

Change from last quarter (first quarter of 2006)

All adjustable rate (ARM) loans had higher SA delinquency rates compared to the first quarter of 2006. Fixed rate mortgage loans (FRM) were either unchanged or saw a decline in delinquencies. The SA delinquency rate for prime ARMs increased 40 basis points (from 2.30 percent to 2.70 percent) and the rate for prime FRM loans was unchanged (at 2.00 percent). The rate for the subprime FRM loans decreased 38 basis points (9.61 percent to 9.23 percent), whereas the rate for subprime ARMs increased 22 basis points (12.02 percent to 12.24 percent). 

The SA delinquency rate increased during the second quarter for all loan types, except VA loans. The delinquency rate increased 4 basis points for prime loans (from 2.25 percent to 2.29 percent), 20 basis points for subprime loans (from 11.50 percent to 11.70 percent), and 22 basis points for FHA loans (from 12.23 percent to 12.45 percent), while decreasing 58 basis points for VA loans (from 6.93 percent to 6.35 percent). 

During the second quarter of 2006, the foreclosure inventory rate increased for prime loans, subprime loans and FHA loans, while the rate decreased for VA loans. The foreclosure inventory rate increased 1 basis point for prime loans (from 0.40 percent to 0.41 percent), 6 basis points for subprime loans (from 3.50 percent to 3.56 percent), and 2 basis points for FHA loans (from 2.18 percent to 2.20 percent), while the rate decreased 4 basis points for VA loans (from 1.14 percent to 1.10 percent).

By loan type, the percent of new foreclosures increased 2 basis points for prime loans (from 0.16 percent to 0.18 percent) and 17 basis points for subprime loans (from 1.62 percent to 1.79 percent), while decreasing 8 basis points for FHA loans (from 0.83 percent to 0.75 percent) and 4 basis points for VA loans (from 0.39 percent to 0.35 percent). 

In the second quarter of 2006, the percent of loans that were seriously delinquent, which is defined as the non-seasonally adjusted (NSA) percentage of loans that are 90 days or more delinquent or in the process of foreclosure, was 1.89 percent, 4 basis points lower than for the first quarter of 2006. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process.

Change from last year (second quarter of 2005)

Compared with the second quarter of 2005, the delinquency rate increased 51 basis points for prime ARM loans and 220 basis points for subprime ARM loans. The delinquency rate decreased 2 basis points for prime fixed loans, while the delinquency rate for subprime fixed loans increased 17 basis points.

Since the second quarter of 2005, the SA delinquency rate increased for prime loans, subprime loans and FHA loans, while decreasing for VA loans. The delinquency rate increased 9 basis points for prime loans, 137 basis points for subprime loans, and 8 basis points for FHA loans, whereas the delinquency rate fell 56 basis points among VA loans. 

The percentage of loans in the foreclosure process decreased for all loan categories except subprime since the second quarter of 2005, which decreased 1 basis point for prime loans, 9 basis points for FHA loans, and 15 basis points for VA loans. Among subprime loans, the percentage of loans in foreclosure increased 27 basis points since the second quarter of 2005.

Over the course of the year, the SA percentage of new foreclosures increased 4 basis points overall and 53 basis points for subprime loans, whereas the percentage decreased 1 basis point for FHA loans and 4 basis points for VA loans. Among prime loans, the percentage of new foreclosures remained unchanged.

Hurricane Katrina Impact on the Statistics

Second quarter delinquency rates still include the impact of Hurricane Katrina – substantially higher delinquency rates in Louisiana and Mississippi resulting from the destruction and dislocation caused by the storm. Delinquency statistics for most loan types were slightly lower once the hurricane effects are eliminated from the second quarter statistics. For example, if the effects of Hurricane Katrina are removed from national statistics, the total delinquency rate is 4.34 percent in the second quarter compared with 4.39 percent if left unadjusted. While this is still a significant adjustment, it is less than the adjustment observed in the previous quarter’s survey, where the correction was a 10 basis point reduction compared with 5 basis points this year. This indicates that as we progress further in time from the hurricane, its effects on the delinquency rate are slowly diminishing. We will continue to report the Katrina adjusted rates through 2006.

The non-Katrina national percentages were calculated by using 2005 second quarter numbers for Louisiana and Mississippi, which were adjusted by applying a factor equal to the change experienced in the rest of the South Region from the second quarter of 2005 to the second quarter of 2006. 

Source: MBA



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