MBA Shows That Delinquency and Foreclosure Rates are Up in the US

For Q2 2007 the delinquency rate is up almost 17%, mortgages in foreclosure are up 41%, and loans entering the foreclosure process are up 51% compared to the second quarter of last year according to the Mortgage Bankers Association. The culprits states seem to be driven by CA, AZ, FL, and NV. The upper Midwest states of MI, OH, IN, and IL continue to be a problem along with PA, KY, and TN. The culprit loan types are subprime and ARMs. There is nothing new here, but the proof of a very weak housing market continues to roll in.

The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.12 percent of all loans outstanding in the second quarter of 2007 on a seasonally adjusted (SA) basis, up 28 basis points from the first quarter of 2007, and up 73 basis points from one year ago, according to MBA’s National Delinquency Survey.

The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 1.40 percent of all loans outstanding at the end of the second quarter, an increase of 12 basis points from the first quarter of 2007 and 41 basis points from one year ago.

The rate of loans entering the foreclosure process was 0.65 percent on a seasonally adjusted basis, seven basis points higher than the previous quarter and up 22 basis points from one year ago. This quarter’s foreclosure starts rate is the highest in the history of the survey, with the previous high being last quarter’s rate.

Similar to last quarter, the national delinquency and foreclosure rates are being driven by what is taking place in a few large states. Additionally, the performance of prime and subprime adjustable rate mortgages (ARMs) is contributing significantly to the overall results.

“The percent of mortgages in Ohio that are 90 days or more past due or in foreclosure is still more than twice the national average and 1% of all of the mortgages in Michigan had foreclosure actions started on them during the last quarter, essentially the same rate as during the last quarter. Problems are still significant in the nearby states of Indiana, Illinois, Kentucky, Tennessee and Pennsylvania. While Michigan’s problems continue to escalate, however, Ohio’s have shown signs of leveling off, albeit at a high level,” said Doug Duncan, MBA’s Chief Economist and Senior Vice President of Research and Business Development.

“What continues to drive the national numbers, however, is what is happening in the states of California, Florida, Nevada and Arizona. Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings. Thirty four states had decreases in their rates of new foreclosure and the increases were very modest in the states with increases, other than those four,” Duncan said.

“In addition, there is a clear divergence in performance between fixed rate and adjustable rate mortgages due to the impact of rate resets. While the seriously delinquent rate for prime fixed loans was essentially unchanged from the first quarter of the year to the second, and the rate actually fell for subprime fixed rate loans, that rate increased 36 basis points for prime ARM loans and 227 basis points for subprime loans.

“What is not clear, however, is whether subprime ARM loans are causing the problems for California or whether California is causing the problems for subprime loans. California has 17 percent of the subprime ARMs in the country and over 19% of the foreclosure starts on subprime ARMs. The four states of California, Florida, Nevada and Arizona have more than one-third of the nation’s subprime ARMs, more than one-third of the foreclosure starts on subprime ARMs, and are responsible for most of the nationwide increase in foreclosure actions.
“There are special circumstances driving conditions in those four states that will likely make things worse:

• Declining home prices make refinancing of these ARMs difficult, particularly if the borrower originally put down little if any down payment. Home prices have dropped in all four of these states and 52 of the 59 MSAs in the four states saw home price declines during the second quarter according to the Office of Federal Housing Enterprise Oversight (OFHEO).

• The root of the home price problem there is that the inventory of new homes available for sale in the Western Region hit an all-time record high at the end of the second quarter. In addition, Florida continues to see a major supply of condos and other new homes on the market.
• These four states have a disproportionately high share of investor loans, or loans to buyers who do not plan to live in the house. As of June 30, the non-owner occupied share of defaulted loans (90 days of more past due or in foreclosure) was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California, compared with 13 percent in the rest of the nation. These investors are much more likely to default on their mortgages if they see the value of their investments falling due to falling home prices.

“Therefore, the problems in these states will continue, and they will continue to drive the national numbers, but they do not represent a national problem,” Duncan said.

Change from last quarter (first quarter of 2007)

The SA delinquency rate increased 15 basis points for prime loans (from 2.58 percent to 2.73 percent) and 105 basis points for subprime loans (from 13.77 percent to 14.82 percent). The delinquency rate increased 43 basis points for FHA loans (from 12.15 percent to 12.58 percent) and decreased 34 basis points for VA loans (from 6.49 percent to 6.15 percent).

The foreclosure inventory rate increased five basis points for prime loans (from 0.54 percent to 0.59 percent), and increased 42 basis points for subprime loans (from 5.10 percent to 5.52 percent). FHA loans saw a four basis point decrease in foreclosure inventory rate (from 2.19 percent to 2.15 percent), while the foreclosure inventory rate for VA loans decreased three basis points (from 1.05 percent to 1.02 percent).

The SA foreclosure starts rate in the second quarter was 0.65 percent, seven basis points higher than the first quarter of 2007 rate of 0.58 percent. By loan type, the foreclosure starts rate increased two basis points for prime loans (from 0.25 percent to 0.27 percent), 29 basis points for subprime loans (from 2.43 percent to 2.72 percent). The foreclosure start rate decreased 11 basis points for FHA loans (from 0.90 percent to 0.79 percent) and four basis points for VA loans (from 0.41 percent to 0.37 percent).

The seriously delinquent rate, the non-seasonally adjusted (NSA) percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process. During the second quarter, the seriously delinquent rate increased 24 basis points to 2.47 percent from 2.23 percent. The rate increased nine basis points for prime loans (from 0.89 percent to 0.98 percent), increased 94 basis points for subprime loans (from 8.33 to 9.27 percent), decreased eight basis points for FHA loans (from 5.26 percent to 5.18 percent) and decreased 10 basis points for VA loans (from 2.45 to 2.35 percent).

Change from last year (second quarter of 2006)

The SA delinquency rate increased for prime, subprime, and FHA loans and decreased for VA loans. The delinquency rate increased 44 basis points for prime loans, increased 312 basis points for subprime loans, and increased 13 basis points for FHA loans. The delinquency rate for VA loans decreased 20 basis points.

The foreclosure inventory rate increased 18 basis points for prime loans and 196 basis points for subprime loans. The foreclosure inventory rate decreased five basis points for FHA loans and eight basis points for VA loans.

The SA foreclosure starts rate increased 22 basis points overall, nine basis points for prime loans, 93 basis points for subprime loans, four basis points for FHA loans, and two basis points for VA loans.

The seriously delinquent rate was 23 basis points higher for prime loans and 304 basis points higher for subprime loans. The rate decreased 22 basis points for FHA loans and 18 basis points for VA loans.