Led by subprime adjustable-rate mortgages and fueled by hurricane-impacted loans, national mortgage delinquency deteriorated.
One-to-four-unit residential mortgage delinquency was 4.70% at the fourth quarter's end, rising 26 basis points and 32 BPS from the third quarter and the comparable period in 2004, respectively, according to the latest National Delinquency Survey by the Mortgage Bankers Association.
"The increase in delinquencies is not surprising," said Doug Duncan, MBA's chief economist and senior vice president. "We have been expecting an up-tick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are ARMs and subprime mortgages, as well as the elevated level of energy prices and rising interest rates."
MBA expects to continue seeing modest rises in upcoming quarters, particularly due to the hurricanes, Duncan said in a conference call.
Whether delinquencies will rise due to ARM loans resetting, Duncan noted that of the 15% of borrowers who may be potentially affected by rate shifts some are jumbo borrowers who tend to be more financially savvy and of higher wealth. Other than jumbo borrowers, many of the households will have a lot of equity in the property at the time of reset and many will refinance into another adjustable product that will have a low initial start rate and be able to manage the rising rate environment.
When hurricane effects were removed from national statistics, the delinquency rate was 4.55%. In Louisiana and Mississippi overall delinquencies were respectively about 21% and nearly 17%, borrowers in default amounted to almost 76,000, yet the number of foreclosure starts decreased significantly when compared to the third quarter.
"The effects of Hurricane Katrina in Louisiana and Mississippi are reflected in the overall level of national delinquencies," Duncan said. "The low foreclosure rates in Louisiana and Mississippi are due to the voluntary forbearance opportunity offered by lenders immediately following this catastrophic storm."
After Louisiana and Mississippi, the three states with the highest delinquencies in the fourth quarter were Alabama with almost 8%, Indiana with over 7% and Georgia with less than 7%, according to the report.
The three lowest delinquency states were Hawaii with less than 2%, and California and North Dakota with more than 2%.
Delinquencies rose for all loan types during the fourth quarter, except for VA loans. The increase was highest in the rate for subprime loans, which at 11.63% went up 87 BPS and 95 BPS from the previous three-month period and a year earlier.
For ARMs, the prime delinquency rate increased 24 BPS from the third quarter to 2.54%, MBA reported, while subprime ARMs rose a whopping 106 BPS to 11.61%. Compared to the fourth quarter 2004, the delinquency rate increased 43 BPS for prime ARMs and 178 BPS for subprime ARMs, according to the report.
The rate of subprime fixed-rate mortgage delinquencies was 9.70% in the fourth quarter, jumping 91 BPS from the prior quarter but 2 BPS below a year ago, the report said.
The foreclosure inventory percentage at the end of the last quarter of 2005 was 0.99%, 2 BPS higher than the third quarter but 16 BPS lower than a year ago. The inventory increased from the third quarter for all types of loans, except VA loans, according to the announcement.
The seasonally-adjusted rate of new foreclosures increased for subprime loans and FHA loans from the third quarter, while declining among VA loans and remaining unchanged for prime, MBA reported.
The survey's results covered over 41 million loans, of which 31 million are prime, almost 6 million are subprime and nearly 5 million government loans.