Delinquencies, Foreclosures Rise in MBA National Delinquency Survey

MBA (3/7/2008 ) Kemp, Carolyn; Sorohan, Mike
As expected, delinquency and foreclosure rates on mortgage loans rose in the fourth quarter 2007, according to most recent data gathered by the Mortgage Bankers Association in its quarterly National Delinquency Survey released yesterday.
The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.82 percent of all loans outstanding in the fourth quarter of 2007 on a seasonally adjusted basis, up 23 basis points from the third quarter of 2007, and up 87 basis points from one year ago, the survey found.

The rate of loans entering the foreclosure process rose to 0.83 percent on a seasonally adjusted basis, five basis points higher than the previous quarter and up 29 basis points from one year ago.

The total delinquency rate is the highest in the MBA survey since 1985. The rate of foreclosure starts and the percent of loans in the process of foreclosure are at highest levels ever.

“Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state,” said MBA Chief Economist Doug Duncan, who discussed the survey’s findings yesterday in a media conference call. “In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face. In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through.”

A positive development, Duncan noted, was that the rate reset issue on adjustable-rate mortgages—the fodder of concern on Capitol Hill and a point of contention among certain consumer groups that use misleading data on the scope of the foreclosure situation—is becoming less of an issue.

“The six-month LIBOR rate, the index rate used for many subprime ARMs, has come down around 2.5 percentage points since last September, greatly reducing the payment shock on many ARM resets,” Duncan said.

Delinquency rates in the survey do not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 2.04 percent of all loans outstanding at the end of the fourth quarter, an increase of 35 basis points from the third quarter of 2007 and 85 basis points from one year ago.

The report said the increase in foreclosure starts involved increases for both prime and subprime loans. From the previous quarter, prime fixed-rate loan foreclosure starts remained unchanged at 0.22 percent, but prime ARM foreclosure starts increased four basis points to 1.06 percent. Subprime fixed foreclosure starts increased 14 basis points to 1.52 percent and subprime ARM foreclosure starts increased 57 basis points to 5.29 percent. FHA foreclosure starts decreased 4 basis points to 0.91 percent and VA foreclosure starts remained unchanged at 0.39 percent.

Since the fourth quarter of 2006, the foreclosure start rate for prime ARMs increased from 0.41 percent to 1.06 percent and the rate for subprime ARMs increased from 2.70 percent to 5.29 percent. The foreclosure start rate for prime fixed loans increased from 0.16 percent to 0.22 percent and the rate for subprime fixed loans increased from 1.09 percent to 1.52 percent.

While subprime ARMs represent 7 percent of loans outstanding, they represent 42 percent of foreclosures started during the fourth quarter. Prime ARMs represent 16 percent of loans outstanding, but 20 percent of the foreclosures started.

California and Florida continue to represent a disproportionate share of foreclosure starts in the country, the survey found. These two states represent 21 percent of all loans outstanding but accounted for 30 percent of foreclosure starts in the US. More importantly, Duncan said, they accounted for 39 percent of all prime ARMs outstanding, but 47 percent of prime ARM foreclosure starts. Similarly, they represented 29 percent of all subprime ARMs, but 36 percent of subprime ARM foreclosure starts. The rate of foreclosure starts in Florida more than tripled between the fourth quarter of 2006 and the fourth quarter of 2007, while the rate in California more than doubled.

“While Michigan, Ohio and Indiana continue to have the highest percentages of loans in foreclosure, and are among the states with the highest rates of new foreclosures, those states experienced comparatively little increase over the last year or last quarter in their rates of new foreclosures started,” Duncan said.

Change from Last Quarter (3Q 2007)
The seasonally adjusted delinquency rate increased 12 basis points for prime loans (from 3.12 percent to 3.24 percent), 100 basis points for subprime loans (from 16.31 percent to 17.31 percent), 13 basis points for FHA loans (from 12.92 percent to 13.05 percent), but decreased nine basis points for VA loans (from 6.58 percent to 6.49 percent).

The foreclosure inventory rate increased 17 basis points for prime loans (from 0.79 percent to 0.96 percent) and increased 176 basis points for subprime loans (from 6.89 percent to 8.65 percent). FHA loans saw a 12 basis point increase in foreclosure inventory rate (from 2.22 percent to 2.34 percent), while the foreclosure inventory rate for VA loans increased nine basis points (from 1.03 percent to 1.12 percent).

The seasonally adjusted foreclosure starts rate increased four basis points for prime loans (from 0.37 percent to 0.41 percent) and 32 basis points for subprime loans (from 3.12 percent to 3.44 percent). The foreclosure starts rate decreased four basis points for FHA loans (from 0.95 percent to 0.91 percent) and was unchanged for VA loans (0.39 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 fourth quarter, the seriously delinquent rate increased for all loan types. The rate increased 36 basis points for prime loans (from 1.31 percent to 1.67 percent), 306 basis points for subprime loans (from 11.38 to 14.44 percent), 46 basis points for FHA loans (from 5.54 percent to 6 percent) and 27 basis points for VA loans (from 2.56 to 2.83 percent).

Change from Last Year (4Q 2006)
On a year-over-year basis, the seasonally adjusted delinquency rate increased for prime and subprime loans and decreased for FHA and VA loans. The delinquency rate increased 67 basis points for prime loans, increased 398 basis points for subprime loans, decreased 41 basis points for FHA loans and decreased 33 basis points for VA loans.

Compared with the fourth quarter of 2006, the foreclosure inventory rate increased 46 basis points for prime loans and 412 basis points for subprime loans. The foreclosure inventory rate also increased 15 basis points for FHA loans and 11 basis points for VA loans.

Seasonally adjusted foreclosure starts rates increased 29 basis points overall—17 basis points for prime loans; 144 basis points for subprime loans; and five basis points for VA loans. For FHA loans, the foreclosure starts rate decreased two basis points from the fourth quarter of 2006.

The seriously delinquent rate was 81 basis points higher for prime loans and 666 basis points higher for subprime loans. The rate also increased 22 basis points for FHA loans and 18 basis points for VA loans.

MBA Chairman Kieran Quinn, CMB, in a question/answer session yesterday during his testimony before the Senate Banking Committee (see story in Washington Spotlight) touted efforts by the HOPE NOW Alliance, of which MBA is a member, in reaching out to homeowners facing delinquency or foreclosure. Since July, HOPE NOW has reached workout plans with more than one million borrowers.

However, Quinn noted that despite HOPE NOW’s best efforts, “50 percent of the homes going into foreclosure are people with which we’ve been unable to get in touch.”