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Delinquency Down, But Subprime Soars

Mortgage Bankers release 3rd quarter delinquency survey

December 10, 2004

By MortgageDaily.com staff

A major trade group representing the mortgage industry had some good news and some not-so-good news; while overall mortgage delinquency was lower, delinquency in the subprime sector rose.

The seasonally adjusted delinquency rate for one-to-four unit residential mortgage loans was 4.41%, according to the Mortgage Bankers Association's third quarter National Delinquency Survey. The report, released Thursday, reflected a 2 basis points decrease from the previous quarter and 24 BPS decline from a year ago.

From July to September, the delinquency rate for subprime loans reportedly soared 35 BPS to 10.39%, but the rate fell for FHA, VA and conforming conventional loans.

The delinquency rise in subprime, a sector that has generally seen growing production over the past year while the conforming sector has declined from refi fallout, coincides with lower third quarter subprime production -- with companies such as New Century, Option One and First Franklin having reported lower originations. In periods of high production, new originations haven't had the opportunity to go delinquent -- temporarily pushing down the delinquency rate. A drop in production has the opposite effect.

The percentage of loans in the process of foreclosure fell to the lowest level in four years -- 1.14%, which is 2 BPS below the second quarter and 10 BPS from the a year earlier, the Washington, D.C.-based group reported. The subprime foreclosure inventory fell by the most -- down 54 BPS to 4.07% -- and slipped for prime loans to 0.48%. The inventory for FHA loans soared to 2.84% and for VA loans jumped to 1.60%.

The percentage of loans entering the foreclosure process at 0.39%, was unchanged from the previous quarter and down 5 BPS compared to last year. While percentages slightly decreased for prime loans and nudged up for FHA and VA loans, new subprime foreclosures shot up 18 BPS to 1.36% during July to September, MBA said.

The improved performance of delinquencies and foreclosures was not a surprise and it is expected that they'll continue their modestly declining trend, according to MBA chief economist Doug Duncan.

"The continued modest declines in both delinquencies and foreclosures reflect the strong pace of economic growth and its steady, modest job creation," he said in an announcement. "These improvements override the effects of the increased subprime and ARM [adjustable-rate mortgage] shares and the aging of the young mortgage portfolio."

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