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Prime, Subprime Delinquency Up; FHA Foreclosures Jump

30-day delinquency up 6 BPS between Q1 and Q2

Aug. 9, 2012

By staff

Residential delinquency on government-insured mortgages declined on a quarterly basis even as foreclosures surged. Prime and subprime mortgages experienced a significant increase in 30-day delinquency excluding foreclosures, while both categories had a healthy decline in the rate of foreclosures -- especially on adjustable-rate mortgages.

Home-loan delinquency of at least 30 days, including foreclosures, was 11.85 percent in the second quarter.

The past-due rate worsened from the first quarter, when it was 11.79 percent. It was the first time overall delinquency was higher since the second-quarter 2011, when the rate was 12.87 percent.

The statistics were included in the National Delinquency Survey Q2 2012 from the Mortgage Bankers Association. The survey covers 42.5 million mortgages from approximately 120 lenders that account for around 88 percent of all first mortgages.

"Perhaps more important than the small size of the increase, however, is the fact that it reversed the trend of fairly steady drops in delinquencies we have seen over the last year," MBA Chief Economist Jay Brinkmann explained. "This is consistent with the slowdown in the economy during the first half of the year and our stubbornly high unemployment rate. Whether this is just a temporary blip or a sign of a true change in direction for mortgage performance will fundamentally depend on the direction of employment over the remainder of the year."

Included in the second-quarter figure was a 30-day delinquency rate, excluding foreclosures, of 7.58 percent on a seasonally adjusted basis. While the 30-day rate was higher than 7.40 percent in the prior quarter, it was lower than 8.44 percent a year earlier.

Data previously reported by Lender Processing Services Inc. indicated that 30-day delinquency, excluding foreclosures, increased less dramatically to 7.14 percent in June from 7.09 percent in March.

At 11.78 percent, Mississippi had the highest 30-day rate excluding foreclosures in MBA's report. Georgia, with a 10.11 percent rate, was the only other state in the double digits. North Dakota's 2.84 percent was the lowest rate.

But the U.S. foreclosure inventory rate, which wasn't seasonally adjusted, fell to 4.27 percent from 4.39 percent as of March 31. The foreclosure rate was also better than 4.43 percent in the second-quarter 2011.

"Both judicial and non-judicial states saw decreases in the percent of loans in foreclosure, but the level of loans in foreclosure in judicial states remains more than twice that of the non-judicial states," the report said.

The LPS data indicated that the foreclosure pre-sale inventory rate was 4.09 percent in June, also lower than 4.14 percent three months earlier.

By far, Florida had the worst foreclosure rate in MBA's survey: 13.70 percent. The rate in all other states was less than 10 percent. Wyoming was the only state at less than 1 percent with an 0.80 percent foreclosure inventory rate.

The rate of foreclosures started during the second quarter was unchanged from the first quarter and from the second-quarter 2011 at 0.96 percent.

"While the rate of new foreclosure filings was unchanged, that rate would have fallen were it not for the considerable jump in foreclosure starts on FHA loans," Brinkmann stated.

The economist said that while Maryland had the highest rate of new foreclosure actions, the rate was mostly driven by the resumption of foreclosures following the multi-state servicer settlement.

Overall second-quarter deterioration in delinquency was concentrated in subprime mortgages and loans insured by the Federal Housing Administration.

The subprime delinquency rate, including foreclosures, climbed to 34.51 percent from the first quarter's 34.44 percent. Fixed-rate subprime loan delinquency rose 19 BPS, while subprime adjustable-rate mortgage delinquency was up just a single basis point.

The overall subprime rate, excluding foreclosures, was 49 BPS worse, while the subprime foreclosure rate fell 42 BPS.

FHA delinquency, including foreclosures, rose to 16.12 percent from 15.83 percent at the end of March. The rate on FHA fixed-rate loans was up 18 BPS, and late payments on FHA ARMs were 38 BPS higher.

While FHA delinquency was down 11 BPS with foreclosures excluded, the foreclosure rate deteriorated by 40 BPS.

Brinkmann noted that the 1.53 percent rate of new FHA foreclosure filings was the highest ever. He attributed the rise to at least one FHA servicer restarting foreclosure actions on delinquent FHA loans following the completion of the Department of Justice review and the mortgage servicing settlement.

"It does not, however, represent a significant decline in FHA performance," he added. "These loans had been considered seriously delinquent for some time and have now been moved from the 90-plus day delinquency bucket to the in-foreclosure bucket, with little net change."

But delinquency on prime mortgages, including foreclosures, was lower, falling to 8.00 percent from the first-quarter rate of 8.02 percent. The prime rate excluding foreclosures was up 20 BPS, but the foreclosure rate tumbled 22 BPS.

The overall improvement for prime mortgages was concentrated in ARM delinquency, which was down 31 BPS. There was no change in the rate of past-due fixed-rate prime mortgages.

Delinquency on loans guaranteed by the Department of Veterans Affairs fell to 8.93 percent from 9.03 percent as of the end of March. Excluding foreclosures, the rate climbed 8 BPS. The VA foreclosure rate was down, however, 18 BPS.

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