Residential mortgage foreclosures and delinquencies slipped in the first quarter of 2006 from the previous quarter and year-ago figures, according to a national industry survey released today, with modest increases expected in the quarters ahead.
The percentage of home loans in the foreclosure process was 0.98 percent at the end of the first quarter, down 1 basis point from the previous quarter and 10 basis points from a year ago. The seasonally adjusted rate of loans entering the foreclosure process was 0.41 percent in the first quarter, down 1 basis point from the previous quarter and 1 basis point from a year ago, according to the Mortgage Bankers Association’s quarterly survey, which covers more than 41.3 million loans.
“The economy grew at a brisk 5.3 percent pace in the first quarter of 2006, and labor markets were quite strong as well, with an average of 176,000 jobs added per month. Within this context, the housing market was normalizing with a declining pace of new and existing home sales, and slowing rates of home price appreciation,” said Doug Duncan, MBA’s chief economist and senior vice president of research and business development.
“We had been telling you for some quarters that we had expected to see a rise in delinquencies,” Duncan said. A number of factors, such as the aging of the loan portfolio, increasing short-term interest rates and high energy prices are expected to put upward pressure on delinquency rates, the economist said, but a strong economy and labor markets have offset positive factors that were important in the first quarter.
“Going forward, we expect these same factors will continue to be important, including the fact that the Federal Reserve might need to raise rates further to keep inflationary pressures contained. In any event, additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead,” said Duncan.
The seasonally adjusted delinquency rate for mortgage loans on one- to four-unit residential properties stood at 4.41 percent at the end of the first quarter, down 29 basis points from the fourth quarter of 2005.
The mortgage trade group’s survey includes 31.4 million prime loans, 5.6 million subprime loans and 4.3 million government loans.
All adjustable-rate loans and fixed-rate loans had lower seasonally adjusted delinquency rates compared with last quarter except for the subprime ARMs. Since last quarter, the adjusted delinquency rate for prime ARMs decreased 24 basis points (from 2.54 percent to 2.3 percent), the rate for prime fixed-rate loans decreased 21 basis points (from 2.21 percent to 2 percent), and the rate for the subprime fixed loans decreased 9 basis points (9.7 percent to 9.61 percent), whereas the rate for subprime ARMs increased 41 basis point (11.61 percent to 12.02 percent).
The seasonally adjusted delinquency rate decreased during the first quarter for all loan types, except VA loans. The delinquency rate decreased 22 basis points for prime loans (from 2.47 percent to 2.25 percent), 13 basis points for subprime loans (from 11.63 percent to 11.5 percent), and 95 basis points for FHA loans (from 13.18 percent to 12.23 percent), while increasing 12 basis points for VA loans (from 6.81 percent to 6.93 percent).
In the first quarter of 2006, the percent of loans that were seriously delinquent, which is defined as the non-seasonally adjusted percentage of loans that are 90 days or more delinquent or in the process of foreclosure, was 1.93 percent, 15 basis points lower than for the fourth quarter of 2005.
Compared with the first quarter 2005, the seasonally adjusted delinquency rate increased for prime loans, subprime loans and FHA loans, and decreased for VA loans. The delinquency rate increased 8 basis points for prime loans, 88 basis points for subprime loans, and 50 basis points for FHA loans, whereas the delinquency rate fell 23 basis points among VA loans.
Compared with the first quarter of 2005, the percentage of loans in foreclosure decreased for all loan categories except subprime: 6 basis points for prime loans, 38 basis points for FHA loans, and 24 basis points for VA loans. Among subprime loans, the percentage of loans in foreclosure increased 1 basis point over the year.
Over the last year, the seasonally adjusted percentage of new foreclosures decreased 2 basis points for prime loans, 3 basis points for FHA loans, and 1 basis point for VA loans. Among subprime loans, the percentage of new foreclosures increased 8 basis points.
In the first quarter of 2006, the seriously delinquent percentage was 4 basis points higher than one year ago.
First-quarter delinquency percentages include the impact of Hurricane Katrina — higher delinquency rates in Louisiana and Mississippi resulting from the destruction and dislocation caused by the 2005 storm.
Delinquency statistics for all loan types were lower once the hurricane effects are eliminated from the first quarter statistics. For example, if the effects of Hurricane Katrina are removed from national statistics the total delinquency rate decreases 39 basis points to 4.31 percent from 4.7 percent in the fourth quarter. This 39-basis-point decrease compares with a 29-basis-point decrease if the Hurricane Katrina impact is not removed.
Duncan noted that loan forbearance programs have helped alleviate some pressure on delinquencies and foreclosures.
“There has been tremendous progress through the forbearance program,” Duncan said.