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Loans in Foreclosure, Conventional Delinquency Rise

No improvement expected

March 27, 2003


Amidst a weak economy, loans in foreclosure and conventional mortgage delinquency increased while overall delinquency fell.

In its 4th quarter 2002 National Delinquency Survey, the Mortgage Bankers Association of America (MBA) reported that the delinquency rate for conventional loans increased 4 basis points (BPS) from the 3rd quarter to 3.08%.

However, driven by a 17 BPS improvement in FHA loan delinquency, total delinquency fell 13 BPS from the prior quarter to 4.53%. Compared to the prior year, delinquency is 14 BPS better.

The total delinquency rate does not include loans anywhere in the process of foreclosure.

Delinquency for loans past due 30 days fell 7 BPS, while 60-day and 90-day delinquencies fell 3 and 4 BPS, respectively.

"It should be pointed out that the slight decline in mortgage delinquencies came at the same time personal bankruptcies were setting a new record high," said MBA's Chief Economist Doug Duncan. "In general, an increase in delinquencies lags a downturn in the economy, and a decrease in delinquencies lags an improvement in the economy."

While the percentage of loans entering the process of foreclosure fell 2 BPS to 0.35%, the share of loans already in the process of foreclosure was 1.18%, up from 1.15% at the end of the third quarter.

Mortgage insurers, who pay claims well after the foreclosure process has started, will likely see claims rise seventy percent this year. According to a report by Friedman, Billings, Ramsey & Co. touting the current oversold nature of mortgage insurers' stock, claims at four mortgage insurance companies are expected to rise to $881.7 million in 2003 from $515.2 million last year. In its report, Friedman looked at MGIC Investment Corp., Radian Group, Inc., The PMI Group, Inc., and Triad Guaranty Inc.

According to the Wall Street Journal, it is possible that the delinquency numbers may have been skewed downward by the refinance wave that has occurred during the past several years. A year or two out we could see surprising increases in delinquency rates as newer loans age, a GMAC RFC research director reportedly said.

"We are seeing some signs of improvement, but absent a significant or sustained period of growth, expect no major improvement in delinquencies," MBA's Duncan said.

Sam Garcia has been in mortgage lending since 1980, and is publisher of MortgageDaily.com. He also owns and operates CloseNow.com, a real estate portal site.

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