So far homeowners seem to be keeping their heads above foreclosure in spite of fears that mortgage delinquencies and foreclosures might begin to mount as short-term rates rise. Add to that the possibility that some of the more exotic home loan products like optional payment and interest only mortgages might come home to roost and there has been cause for concern.
American homeowners, however, appear to be holding their own.
The Mortgage Bankers Association released its National Delinquency Survey for
the first quarter of 2006 on last week and, with a few exceptions, reported
that the percentage of loans involved in various phases of the foreclosure process
was down slightly from the fourth quarter of 2005. These figures are even more
reassuring given that this was really the first chance for the impact of Hurricane
Katrina to appear.
The Mortgage Bankers Association (MBA) collects information by loan type, that is prime, sub-prime, fixed rate and adjustable ARM mortgages and by guarantor (Federal Housing Authority (FHA) and VA loans.) Loans falling under the auspices of Freddie and Fannie are considered prime loans. This quarter the survey covered over 41.3 million loans (31.4 million prime, 5.6 million sub-prime, and 4.3 government loans,) all-in-all, a fairly comprehensive poll.
Delinquencies are defined as those loans where the borrower is 30 to 90 days behind in payments. At the end of the delinquency period - and this may vary from state to state depending on the type of foreclosure allowed under state law and we assume can also be affected by proactive attempts by the borrower to intervene in the process - loans are actually placed into foreclosure; that is handed over to an attorney and/or advertised for sale. In some states foreclosure takes only a few months, in others it can take two to three years. The last category, new foreclosures provides statistics on situations where legal action has taken place (in some states there is a right of redemption) and houses are, in general, available for sale to new owners.
During the first quarter the percentage of all loans in the foreclosure process was 0.98 percent compared to 0.99 percent during the last quarter of 2005. The seasonally adjusted rate of loans entering the foreclosure process (i.e. coming out of the delinquency period) was 0.41 percent, also one basis point less than the previous quarter.
When compared to figures one year ago there was both good news and bad news. The percentage of loans actually in foreclosure was down 10 basis points from a year ago, but the delinquency rate was up 10 basis points. This could indicate upcoming problems since a portion of these delinquencies will certainly carry forward into foreclosure, or it could merely be a short-term blip brought about by Katrina or the many other natural disasters - from wildfires to floods to tornados - suffered by homeowners across the country in recent months.
Adjustable rate and fixed rate loans had lower seasonally adjusted delinquency rates during the first quarter of 2006 than in the previous quarter with the exception of sub-prime adjustable rate loans. The delinquency rate for prime ARMs decreased from 2.54 percent to 2.30 percent from the earlier quarter and that for fixed rate loans was down 21 basis point to 2 percent. Even the delinquency rate for sub-prime fixed rate loans declined from 9.70 to 9.61 percent. The delinquency rate for sub-prime ARMS, however, increased from 11.61 percent to 12.02 percent.
Of all loan types, only
saw an increase in the delinquency rate. Conventional prime loans declined on a seasonally adjusted basis from 2.47 to 2.25 percent; FHA loans were down from 13.18 percent to 12.23 percent; and sub-primes declined 13 basis points to 11.50 percent but VA loans were up 12 basis points to 6.93 percent.
VA loans also saw an increase in the foreclosure inventory, increasing 1 basis point to 1.14 percent. Sub-prime loans were up 17 basis points in this category to 3.50 percent.
Year over year figures showed prime fixed rate mortgages in better shape vis-a-vis delinquency rates but prime and sub-prime ARMs and sub prime fixed rate mortgages were all higher in this category than last year. Up ticks for delinquencies in prime fixed rate mortgages were minimal (2 basis points) but the rate for prime ARMS increased 24 basis points, sub-prime ARMS were up 177 basis points and the rate for sub-prime FRM loans increased 51 basis points.
Year-over-year figures for loans in foreclosure were lower for all categories except sub-prime. Prime loans were down 6 basis points, FHA loans down 38 basis points and VA loans down 24 basis points. Sub-prime loans had an increase of 1 basis point in this category.
Katrina had substantial impact on the figures. Once the higher delinquency rates in Louisiana and Mississippi resulting from hurricane damage were filtered out of the system, delinquency figures improve. For example, if Katrina is removed from the equation the total delinquency rate declines 39 percent from the fourth quarter of 2005.
Doug Duncan, MBA's chief economist and senior vice president of research and business development commented that "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. The strong economy and labor markets are offsetting positive factors that were particularly important in the first quarter."