More VA borrowers paid their mortgages on time, helping overall delinquency to decline for the second quarter in a row. But delinquency on subprime adjustable-rate mortgages was worse.
The seasonally-adjusted delinquency rate for one-to-four family residential loans was 4.39 percent in the second quarter, slipping 2 basis points from the first quarter but rising 5 BPS above the level a year earlier, according to the latest National Delinquency Survey from the Mortgage Bankers Association.
The quarter-to-quarter decline was driven by significant decreases in the delinquency rate for loans 90 days or more past due, particularly in Louisiana and Mississippi where many borrowers have refinanced or entered into programs to make loans current, among other efforts, MBA said in a conference call.
When the effects of Hurricane Katrina were removed, the national delinquency rate was 4.34 percent. While the aftermath is still negatively impacting overall delinquency, primarily due to substantially higher delinquency rates in Louisiana and Mississippi resulting from destruction and dislocation, the effect is diminishing, as the previous quarter's survey showed a 10 BPS reduction when hurricane effects were excluded, MBA said.
The delinquency rates rose from the first quarter for all loan types, except VA loans, which fell 58 BPS to 6.35 percent. The increase was highest in Federal Housing Administration loans, 22 BPS to 12.45 percent.
All ARM loans had higher seasonally-adjusted delinquency rates than in the first quarter, with the rate for subprime rising 22 BPS to 12.24 percent, while fixed rate mortgages were either unchanged or saw a decline, MBA reported.
The inventory of foreclosure loans was 0.99 percent at the end of the second quarter, only 1 BPS higher than in the prior quarter. Except for Veterans Affairs loans, the percentage of loans in the foreclosure process increased for all loan types, with subprime loans leading the way, MBA announced.
The rate of loans entering the foreclosure process rose 2 BPS from the end of the first quarter to 0.43 percent. By loan type, new foreclosure rates increased the most for subprime loans -- 17 BPS to 1.79 percent -- while decreasing most for FHA loans.
MBA noted in the call that, for every delinquency and foreclosure measure, subprime loans had a higher rate than last quarter and a year ago driven mostly by subprime ARM performance, and that the same occurred in foreclosure and delinquency rates for ARM loans -- which currently account for 25 percent of all mortgages.
"To this point, generally healthy economic growth and labor markets have kept delinquency rates from rising," said MBA Chief Economist Doug Duncan in a written statement. "However, we are seeing increases in delinquency rates for subprime loans, particularly for subprime ARMs. It is not surprising that subprime borrowers are more susceptible to these changes."
Those factors, along with the aging of the loan portfolio, increasing short-term interest rates, high energy prices and the expected further slowing in the economy and housing market will result in "modest increases in delinquency and foreclosure rates in the quarters ahead," Duncan added.
The survey reportedly covered over 42.5 million loans; 5.7 million were subprime, which is 150,000 more than in the prior quarter, 32.4 million were prime, and 4.4 million were government loans.