A smaller share of borrowers were late on their house payments during the first quarter, the industry's most prominent trade group said Tuesday, and the improvement is expected to continue for a few more quarters. But subprime borrowers with adjustable rate loans didn't fare as well.
The first quarter, seasonally adjusted delinquency rate for one-to-four unit residential mortgages was 4.31%, sliding seven basis points from the previous quarter and 15 BPS from a year earlier, according to the latest National Delinquency Survey released today by the Mortgage Bankers Association.
The last time delinquencies were this low was in the second quarter 2000 when the rate was 4.11%.
The quarterly improvement was due to decreases in the "30 to 59 days" and "60 to 89 days" delinquent loan categories, while the percentage of loans 90 days or more past due nudged up, the survey said.
"Economic growth is expected to remain strong over the next couple of years," said Doug Duncan, MBA chief economist, in a written statement. "Likewise, job growth should be steady in the presence of modest interest rate rises. These expectations likely mean we will continue to see moderate declines in delinquencies for the next few quarters."
Beyond that, however, a maturing portfolio, as well as an increased share of subprime loans -- up to 13% from 10% a year ago -- are factors that could potentially worsen delinquency. The vast majority of loans in the national portfolio were originated between 2002 and 2004. Because loans tend to potentially become delinquent usually about three to five years after origination, only loans originated in 2002 are entering peak delinquency period while others still have to mature, MBA chief economist Doug Duncan commented in the conference call.
Prime adjustable-rate mortgages had a delinquency rate of 2.06% in the first quarter, down from the fourth quarter and a year ago, the survey showed, while the 2.02% rate for prime fixed-rate mortgages edged down from the previous quarter but nudged up from a year earlier.
In the subprime sector, the seasonally adjusted delinquency rate for ARMs jumped 42 BPS from the previous quarter to 10.25%, but was down a whopping 74 BPS from the first quarter last year. Fixed-rate subprime loans had a seasonally adjusted delinquency rate of 9.10% -- sinking 62 BPS during the quarter and plunging 153 BPS over the year.
The economist pointed out many ARMs will be reaching adjusting points in 2006 or 2007 and could negatively affect delinquency rates.
On a quarter-to-quarter basis, off all loans (prime, subprime, VA and FHA), the delinquency rate decreased the most -- 50 BPS -- for FHA loans to 11.73%, and the largest increase -- 29 BPS -- was seen in subprime loans to 10.62%. On a year-over-year basis, however, FHA loan delinquency slightly rose, while subprime loan (ARM and fixed rate) delinquency improved by 104 BPS.
The foreclosure inventory percentage decreased for all loan types from the fourth quarter and last year at this time, most notably occurring with subprime loans -- down 33 BPS and 137 BPS from those respective periods to 3.49% in the first quarter.
Since the fourth quarter, the percentage of new foreclosures decreased seven BPS for all loans. but were 20 basis points better for FHA loans. Over the last year, the seasonally adjusted percentage of new foreclosures fell 15 BPS overall and 44 BPS for subprime loans.
Major factors contributing to improved numbers was growth in real income, employment and economy, as well as a good amount of borrowers refinancing into lower-rate loans during the period, which saw the 10-year Treasury fall 17 BPS, Duncan said.
The seriously delinquent rate -- the non-seasonally adjusted percentage of loans that are 90 days or more delinquent or in the process of foreclosure -- was introduced to the survey at 1.89%, 18 BPS lower than fourth quarter and 25 BPS lower than the first quarter 2004.
The latest survey reportedly covered nearly 40 million loans -- 29.4 million being prime, 5.1 million subprime, and 5.0 million government loans.