Foreclosures Off as Delinquency Ascent Begins

Residential mortgage delinquency on one-to-four-unit properties stood at a seasonally adjusted rate of 4.34% at the end of the second quarter, according to the Mortgage Bankers Association’s latest National Delinquency Survey, up three basis points from the first quarter but down 22 BPS from a year ago.

The delinquency survey results were reportedly based on nearly 40 million loans, of which almost 30 million were prime, over 5 million were subprime loans and there rest government loans.

Reversing the trend in the prior quarter, the slight uptick in delinquency was driven by increases in the “30 to 59 days” and “60 to 89 days” delinquent categories, MBA said, while the percent of loans that were seriously delinquent (90 days or more past due or in the process of foreclosure) decreased.

With economic and job growth “combined with the low interest rate environment, consumers improved their household finances and the percentage of homeowners making their mortgage payments on time increased to nearly 96 percent,” said MBA chief economist Doug Duncan in Thursday’s announcement.

However, “we expect an uptick in delinquency rates over the next few quarters in the states impacted by Hurricane Katrina, especially Louisiana and Mississippi,” he added. “The first effects of Katrina on delinquencies should be seen in the 30 to 59 days delinquent category reported in the third quarter, with more complete impacts reflected in the fourth quarter numbers. In addition, higher energy costs may exacerbate delinquency rates starting in the fourth quarter.”

Prime borrowers with adjustable rate mortgages had a 2.19% delinquency rate, MBA reported, an increase of 13 BPS from the prior quarter but 7 BPS lower than the same period a year ago. For fixed-rate prime loans, the rate of 2.02% was unchanged from the first quarter and 9 BPS below the level a year earlier.

For subprime loans, the 10.04% ARM delinquency rate for the second quarter sunk 21 BPS from the prior three-month period and dropped 8 BPS over the year, according to the announcement. Fixed-rate subprime delinquency of 9.06% inched down 4 BPS from the first quarter and plunged 72 BPS from a year ago.

Compared to the first quarter, delinquencies decreased the most — 29 BPS to 10.33% — for subprime loans and also fell for VA loans, but they edged up for prime loans and jumped the most with FHA loans, up 64 BPS to 12.37, MBA said. Compared to a year ago, the rate of delinquency fell for each of four types of loan, with the largest downturn — 66 BPS to 6.91% — occurring in VA loans.

The percentage of loans in foreclosure was 1.00% at the end of the second quarter, reflecting decreases from last quarter and a year earlier in all loans, MBA reported, with most notable downturns occurring in subprime loans, which at 3.29% fell 20 BPS quarterly and a whopping 111 BPS annually.

The seasonally adjusted rate of loans entering the foreclosure process reportedly slightly improved on a quarterly and annual basis to 0.39% as a result of decreases in mostly all loans, except subprime mortgages, which had the largest quarterly decline but on annual basis were the only ones with an increase — up 8 BPS to 1.26%.