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Subprime Delinquency Falls as FHA Rate Climbs

Subprime Delinquency Falls as FHA Rate Climbs

MBA survey indicates overall delinquency rate declines

January 12, 2004

By staff

Amidst a recovering economy, an industry report said overall national delinquencies fell further during the fourth quarter, although foreclosures increased slightly.

According to the National Delinquency Survey released Thursday by the Mortgage Bankers Association of America (MBA), the seasonally adjusted delinquency rate for one-to-four-unit residential properties dropped 16 basis points (BPS) from the third quarter to 4.49%. In the fourth quarter of 2002, the rate was 5.03%, said Doug Duncan, the group’s senior vice president, in a conference call.

According to revisions, the latest delinquency rate — derived from 37.2 million loans serviced — is at the lowest level since the second quarter in 2002, when the rate was 5.51%, said the MBA. The group reported it revised its historical delinquency rate series to make it consistent with the increased number of subprime loans now in the survey — 3.1 million, a more representative figure of the market and more than double the amount in previous quarters.

Duncan said that as the economic recovery continues, delinquency rates are declining from their post-recession peak of 5.50% in the third quarter of 2001 and that the “the combined levels of home purchases and increases in home prices are evidence of a fundamentally sound housing market.”

The highest seasonally adjusted delinquency rate was seen in FHA loans, which on a quarter-to-quarter basis rose 10 BPS to 12.23%, the Washington D.C. trade group reported. It is the first time the FHA rate is above the subprime delinquency rate, which fell from 12.69% to 11.59%. As for prime loans, the rate fell 5 BPS to 2.40%.

The percentage of loans in the process of foreclosure at the fourth quarter’s end was 1.29%, up 5 BPS from the previous quarter, yet 22 BPS below a year ago, said MBA. While FHA loans jumped the most — up 13 BPS to a new record high of 2.93%, subprime loans had a higher percentage at 5.63% and prime loans were 0.55%.

The rate of loans entering foreclosure in the fourth quarter edged up 1 BPS to 0.45%, according to the survey. Subprime loans had the highest percentage as they increased 21 BPS to 2.13%, FHA loans decreased to 0.91% and prime loans remained unchanged at 0.20%.

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