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Subprime ARMs Drive Delinquency Surge

5.12% 2nd quarter delinquency

Sept. 6, 2007

By SAM GARCIA Mortgage Daily



Late payments on subprime adjustable-rate mortgages have increased for eight consecutive quarters and currently sit near 17 percent, while delinquency improved on fixed rate mortgages and loans insured by the Federal Housing Administration. Fueled by activity in just four states, foreclosures continued to rise during the latest quarter.

Seasonally adjusted residential delinquency reached 5.12 percent in the second quarter, up 28 basis points from the first quarter, the Mortgage Bankers Association said in its latest National Delinquency Survey. Delinquency was 73 BPS higher than in the second quarter 2006.

MBA said it based its findings on data from more than 44 million loans, including over 6 million subprime loans.

By state, delinquency was highest in Mississippi, at 9.33 percent; Michigan, at 7.55 percent; and Louisiana, at 7.29 percent, according to the Washington, D.C.-based group.

FHA delinquency increased 43 BPS to 12.58 percent, while lates on prime loans rose just 15 BPS to 2.73 percent, the statement indicated.

Subprime delinquency, which has risen each of the past five quarters, climbed 105 BPS from the first quarter to 14.82 percent, MBA reported. On just subprime ARMs, delinquency has risen each of the past eight quarters and stood at 16.95 percent on June 30.

Loans in the process of foreclosure were 1.40 percent on June 30, up 12 BPS from the prior period and 41 BPS higher than a year earlier, the survey said. This rate was highest in Ohio -- at 3.60 percent, then 3.01 percent in Indiana and 2.77 percent in Michigan.

Loans entering foreclosure ended the second quarter at 0.65 percent, up 7 basis points from the first quarter. By category, foreclosure starts were 29 BPS higher for subprime, 2 BPS higher for prime and 11 BPS lower for FHA. By state, Michigan was highest, at 1.00 percent, followed by Ohio's 0.98 percent and Indiana's 0.98 percent.

"What continues to drive the national numbers, however, is what is happening in the states of California, Florida, Nevada and Arizona," said MBA Chief Economist Doug Duncan in the announcement. "Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings."

Duncan explained declining home prices, an oversupply of homes for sale and a disproportionately high share of investor loans is driving the higher delinquency in these four states.

Even though serious delinquency eased 1 BPS for fixed-rate prime loans and fell 5 BPS on subprime loans, it jumped 36 BPS from the first quarter for prime adjustable-rate mortgages and soared 227 BPS for subprime ARMs, the trade association said. Foreclosure inventory was up 5 BPS to 0.59 percent for prime loans, 42 BPS higher to 5.52 percent for subprime loans and 4 BPS lower to 2.15 percent for FHA-insured loans.


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Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Prior to his news career he worked in mortgage lending for two decades.

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