Late mortgage payments went up in the third quarter of 2005 compared to the second quarter, blown up 10 basis points by Hurricane Katrina, a mortgage survey today revealed.
At the end of the third quarter, the seasonally adjusted delinquency rate for mortgage loans on single-family residential properties hit 4.44 percent, reflecting the impact of Katrina, the Mortgage Bankers Association’s 2005 second-quarter national delinquency survey reported.
If not for Katrina, late payments would have dropped to 4.21 percent from the previous quarter, according to Doug Duncan, the association’s chief economist. In fact, delinquencies, or late payments, for all loan types were lower in the U.S. once the hurricane effects are eliminated, the MBA said.
“Louisiana went from a 6.7 percent delinquency rate to a 26.4 percent delinquency rate” after Katrina, the highest in any state since the MBA survey began in 1979, Jay Brinkmann, the MBA’s vice president of research and economics, said in a conference call.
“The storm hit August 29. Mortgage payments were due August 31. When people were evacuating for a hurricane they did not stop to drop their mortgage checks in the mail. The result was that by Sept. 30 there were delinquencies,” Brinkmann said.
Duncan had predicted the uptick in delinquency rates thanks to Katrina and other storms in the association’s September delinquency survey.
This quarter’s results cover approximately 40.7 million loans, the association said.
Foreclosure percentages, which are not yet impacted by Katrina, dropped in the third quarter compared to last year and the previous quarter, the MBA reported.
The percentage of loans in the foreclosure process was 0.97 at the end of the third quarter, a drop of 19 points from the previous year and a drop of 3 basis points from the second quarter of 2005. (A basis point is 1/100th of a percent and is the unit the MBA uses to calculate changes.)
The percentage of mortgages that started the foreclosure process rose to 0.41 percent, from 0.39 percent in the second quarter, the MBA said.
While Katrina and other storms have impacted delinquencies and foreclosures, Duncan noted that in the second quarter, the overall U.S. economy grew at almost 4.3 percent in annualized real terms, adding 147,000 payroll jobs per month.
“The leading cause of delinquencies is job loss,” the chief economist said.
Duncan predicted that the year will finish as a strong growth year and 2006 will also show strong economic growth. “Housing will remain strong with a modest decline of 3 to 4 percent in house sales,” the chief economist said.
Late payments for adjustable-rate loans is up 7 basis points, from 2.23 percent to 2.3 percent, compared to this time last year, while the percentage among prime fixed rate mortgage loans decreased four basis points. Still, the increase in late payments for ARMs is only modest, the MBA affirmed.
“While we haven’t attempted to sort it out statistically, just the aging of ARM loans that were put in place a couple of years ago might have generated the increase we’ve seen,” said Brinkmann in response to a question about the merely modest increase.
“The reason delinquencies haven’t gone further – some of the loans are still young and we’ve had economic growth. We will see about 4 percent GDP (Gross Domestic Product) growth and addition of jobs. Household income strength is substantial and people have in general made good decisions about loan products. At the end of the day, the most important factor is job growth,” said Brinkmann.
There are two shifts taking place in the housing market currently, Duncan said.
“One is a cyclical change. As interest rates move through a cycle and the yield curve changes shape, that either advantages or disadvantages certain loan products depending on whether spreads are wide or narrow,” Duncan said.
The other change is that new loan products, such as adjustable-rate mortgages, which either didn’t exist before or didn’t see widespread use, have been added to the mix, Duncan said.
“In the longer term you will never see the same market share of 30-year fixed mortgages than you have in the past, because now households have more products they can switch to,” Duncan said.
The MBA has conducted the National Delinquency Survey on a quarterly basis since 1953. The survey covers more than 38 million loans, representing more than 80 percent of all first-lien residential mortgage loans in the United States.
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