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FHA, Subprime Performance Improves as Overall Delinquency Worsens

6.41% Q2 delinquency

Sept. 5, 2008

By Mortgage Daily staff


Quarterly delinquency rose while foreclosure activity reached a record. But delinquency on subprime and FHA mortgages improved. In addition, states with the highest levels of foreclosures were not among states with the worst delinquency -- suggesting the delinquency cycle may be starting to mature.

Mortgage delinquency of at least 30 days was 6.41% as of June 30 on a seasonally adjusted basis, according to the National Delinquency Survey announced by the Mortgage Bankers Association today.

Delinquency rose from 6.35% in the first quarter and 5.12% during the second-quarter 2007, MBA said.

On just prime loans, delinquency was 3.93%, climbing from 3.71% in the first quarter.

But second-quarter subprime delinquency declined to 18.67% from 18.79%, the report indicated. While fixed-rate subprime mortgage late payments rose to 16.02% from 15.38%, subprime adjustable-rate mortgage delinquency fell to 21.03% from 22.07%.

The improvement in subprime activity follows a report from HOPE NOW in July which indicated subprime delinquency fell 1 basis point from the first quarter to 13.27 percent.

Late payments on loans insured by the Federal Housing Administration also were down, falling for the second straight quarter to 12.63% from 12.72 in the first quarter.

The states with the highest delinquency were Mississippi, at a whopping 10.44%; Michigan, which stood at 8.55%; Georgia, at 8.06% delinquency; Indiana, at 7.97%; and Tennessee, with 7.70%.

The lowest level of late payments was in North Dakota, with 2.78% delinquency.

The rate of U.S. loans for which a foreclosure was started was a record 1.19%, climbing from 0.99% the prior quarter and 0.65% the prior year.

The foreclosure start rate on prime loans rose to 0.67% from 0.54% in the first quarter, while subprime foreclosure starts climbed to 4.70% from 4.06%. Foreclosure starts on FHA loans increased to 1.03% from 0.87%.

The highest foreclosure-start rates were in Nevada, at 2.24%; Florida, with 2.21%; and California, with 1.82%. The lowest foreclosure-start rate was in Wyoming, with 0.28%.

"Subprime ARM loans accounted for 36 percent of all foreclosures started and prime ARMs, which include option ARMs, represented 23 percent," MBA Chief Economist Jay Brinkmann said in the report. "However, the increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans."

Brinkmann noted that California and Florida alone accounted for 39 percent of all of the foreclosures started during the latest period.

The inventory of U.S. mortgages in foreclosure at the end of the second quarter was also a record -- at 2.75%, climbing from 2.47% the prior period and 1.40% the prior year.

The prime foreclosure rate rose to 1.42% from 1.22%, and the subprime rate increased to 11.81% from 10.74%. On FHA loans, the foreclosure rate decreased to 2.24% from 2.40% in the first quarter.

Florida had the highest foreclosure inventory on June 30, at 6.00%. Nevada was next, at 4.92%, then Ohio, at 3.97%. The lowest foreclosure rate was in Wyoming -- where just 0.59% of loans were in foreclosure.

"The national foreclosure numbers continue to be driven by the hardest hit states continuing to get much worse," Brinkmann stated. "The increases in foreclosures in California and Florida overwhelmed improvements in states like Texas, Massachusetts and Maryland."



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