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Spike in Subprime Defaults Pushes Overall Lates Higher

12.38% 90-day delinquency in May

July 6, 2010

By staff

A spike in the rate of subprime loans that were three months past due helped reverse an overall monthly improvement in delinquency. The deterioration was concentrated in early-stage delinquencies as the foreclosure rate for all types of loans held steady.

The news came today from Lender Processing Services Inc.

According to the Jacksonville, Fla., company, total delinquency of at least three months, including foreclosures, was 12.38 percent on May 31. The rate represented 7.4 million delinquent loans.

LPS said the rate was determined utilizing its database of nearly 40 million loans. Extrapolated out, around 51.6 million residential loans are outstanding, fewer than around 52.2 million a year earlier.

The level of late payments was worse than 12.17 percent at the end of April -- when the rate had improved.

Florida delinquency rose 1 basis point from April to 22.4 percent -- the highest total delinquency rate of any state during May. No. 2 Nevada saw late payments ease 1 basis point to 21.8 percent. Mississippi's 16.2 percent was next, followed by Georgia's 14.8 percent and Arizona's 14.6 percent.

On the other end of the spectrum was North Dakota, where just 4.1 percent of mortgages were either at least three months late or in foreclosure.

Included in the latest U.S. figure was a 3.18 percent foreclosure rate, the same as the previous month.

But the loan delinquency rate, which excludes foreclosures, rose to 9.20 percent from April's 8.99 percent.

"Early-stage delinquencies are increasing as normal seasonal improvements taper off," LPS explained, though, following two monthly declines, "deterioration ratios increased, with 2.5 loans rolling to a 'worse' status for every one that has improved."

Nevada's 14.5 percent loan delinquency rate was the worst of any state, though Mississippi's 14.0 percent wasn't far behind.

LPS warned of a ballooning "shadow inventory" as the average number of days it takes for a loan to move from 30-days delinquent to foreclosure sale reached an all-time high of 449 days.

The following chart demonstrates how a spike in subprime 90-day defaults over the past two months contributed to the recent increase in overall delinquency.

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