Delinquencies Down

The seasonally-adjusted delinquency rate was 4.41%, sliding 29 basis points from the fourth quarter, according to the latest National Delinquency Survey from the Mortgage Bankers Association. Delinquency was 10 BPS above the level in the first quarter a year earlier.

Excluding the effects of Hurricane Katrina, the overall delinquency rate was 39 BPS lower than in the fourth quarter, MBA said.

The quarter-to-quarter decrease was reportedly driven by a 23-BPS downturn in the rate of loans 30 to 59 days past due.

Except for VA loans, delinquencies fell for all loan types, with the largest decline — 95 BPS to 12.23% — in FHA mortgages, according to the report, which was based on over 41.3 million mortgages for one-to-four-unit residential properties.

All adjustable- and fixed-rate loans had lower delinquency rates than in the fourth quarter, except for subprime ARMs — which increased 41 BPS to 12.02%, MBA reported.

In the first quarter, there was a brisk pace of economic growth, strong labor markets, and the housing market was normalizing with a declining pace of new and existing home sales, and slowing rates of home price appreciation, MBA Chief Economist Doug Duncan said in a written statement.

“In prior quarters we have indicated a number of factors including the aging of the loan portfolio, increasing short-term interest rates, and high energy prices which are putting upward pressure on delinquency rates,” Duncan added. “The strong economy and labor markets are offsetting positive factors that were particularly important in the first quarter.

“Going forward we expect these same factors will continue to be important, including the fact that the Federal Reserve might need to raise rates further to keep inflationary pressures contained. In any event, additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead.”

Employment, the most influential factor in delinquency rates, is expected to grow at a slower pace, Duncan said in a conference call.

And while there has been discussion about the impact of interest rate changes on the ability of households to make a mortgage payment,” he noted that MBA’s expected “modest” increases in delinquency take into consideration that around 80 percent of households are not interest-rate sensitive, with about half having no mortgage at all. The remaining fifth, or about 18%, of households have an adjustable term on their mortgage and of all ARMs outstanding, 68% are prime.

Within the subprime category, about 58% are ARMs, but the total fixed and adjustable share outstanding is less than 13 percent, Duncan said.

The foreclosure inventory percentage was 0.98%, down 1 BPS and 10 BPS from the end of the fourth quarter and year-ago first quarter, respectively, MBA said. The largest quarterly decrease in the foreclosure inventory rate was reportedly in FHA loans — 16 BPS to 2.18% — while the largest increase — 17 BPS to 3.50% — occurred in subprime loans.

MBA has not yet estimated the total potential foreclosures due to Katrina, but the number of loans still delinquent in Louisiana has fallen from 103,000 to 55,000 and from 39,000 to 29,000, respectively, due to forbearance. Thus, “at some point losses will be recognized … but eventually there will be a reckoning in the marketplace,” Duncan said.

The seasonally-adjusted percentage of loans that entered the foreclosure process during the first quarter was 0.41, ticking down 1 BPS from the prior three-month period as well as from a year ago, the survey report showed. New foreclosures decreased from the fourth quarter for prime and FHA loans, but rose for subprime and VA loans.