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Delinquency Rise Due to Worsening 30-Day Accounts

Overall 30 day delinquency 4.43%, but subprime improves

September 9, 2004

By MortgageDaily.com staff

While fewer borrowers fell into foreclosure during the second quarter, residential mortgage delinquencies inched up. But late payments in the subprime sector improved.

The second-quarter National Delinquency Survey released Wednesday by the Mortgage Bankers Association (MBA) showed that the seasonally adjusted delinquency rate for one-to-four-unit residential mortgage loans was 4.43% -- up 10 basis points (BPS) from the first quarter. The rate, however, is down 54 BPS from a year earlier.

Although the percentage of serious delinquencies -- loans 90 days or more past due or in the foreclosure process -- continued to improve, the quarter-over-quarter increase in the delinquency rate was "almost entirely due to a rise in the number of loans that are 30 to 59 days past due," the group's chief economist Doug Duncan said in a prepared statement.

In the first quarter, the opposite occurred -- the primary driver of the overall lower delinquency rate was the decrease in short-term past due loans. But this is usual, according to Duncan, who indicated that overall delinquency may drop again next quarter.

"We saw similar upward blips of 13 and 12 basis points in [short-term delinquencies during] the second quarters of 2002 and 2003, respectively, which were followed by declines in the third quarters, he said.

"Based on the continued expansion of the economy and strong home-price growth in many regions, it is unlikely this small upward blip represents a reversal of the downward trend in delinquencies we have seen since the middle of 2001."

Of all the loan types, subprime loans were the only category in which the seasonally adjusted delinquency rate decreased from the first quarter -- by a whopping 115 BPS to 10.04%. Federal Housing Administration (FHA) loan delinquencies were the highest for the third consecutive quarter -- after a sizable drop last quarter, the rate soared 84 BPS to 12.52%, slightly below the record level set a year before. The rate for prime loans increased 14 BPS to 2.40% and for Department of Veterans Affairs (VA) loans, it went up 18 BPS to 7.55%, MBA said.

The survey reportedly showed the delinquency rate for prime fixed-rate mortgages fell 11 BPS during the second quarter to 2.11%, while ARMs slipped 2 BPS to 2.26%.

Subprime fixed-rate mortgage delinquency fell 154 BPS to 9.09% and for ARMS declined 114 BPS to 9.85%.

The percentage of loans in the foreclosure process at 1.16% -- the lowest level it has been at since the end of 2000 -- plunged 11 BPS from the first quarter, MBA reported. The subprime foreclosure loan inventory decreased by the most -- 44 BPS to 4.61%. The inventory for VA loans fell to 1.45%, and slipped to 0.49% for prime loans.

The seasonally adjusted rate of loans entering the foreclosure process of 0.39% decreased 7 BPS from the previous quarter. The rate, however, is up 3 BPS from the second quarter last year.

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