A survey of more than 42.5 million loans nationwide suggests that overall, homeowners are keeping up with their mortgage payments even as interest rates go up and their property appreciates more slowly.
The Mortgage Bankers Association’s quarterly survey of delinquent home loans shows a modest increase in the percentage of borrowers who are behind on payments of prime, subprime and FHA loans.
But the overall delinquency rate fell 2 basis points to 4.39 percent compared to last quarter — a reduction attributed to “significant decreases” in the delinquency rate for VA loans and loans 90 days or more past due. When compared to the same quarter last year, delinquency rates are up 5 basis points from 4.34 percent. A basis point is one one-hundredth of a percent.
The survey also suggests that foreclosures remain stable. The percentage of home loans in the process of foreclosure nationwide at the end the second quarter was 0.99 percent, up 1 basis point from the last quarter, but down 1 basis point from the same quarter last year.
Although the figures for the country as a whole may be no cause for alarm, there are trouble spots in some regions, and a further slowing in the economy and housing market will produce “modest increases in delinquency and foreclosure rates” in the quarters ahead, said the MBA’s chief economist, Doug Duncan.
“To this point, generally healthy economic growth and labor markets have kept delinquency rates from rising. However, we are seeing increases in delinquency rates for subprime loans, particularly for subprime ARMs,” Duncan said. “It is not surprising that subprime borrowers are more susceptible to these changes.”
The delinquency rate for subprime loans was up 20 basis points from last quarter, to 11.7 percent. Some states had considerably higher delinquency rates for subprime loans, including Michigan (17.8 percent), West Virginia (16.8 percent) and Alabama (16.5 percent).
Mississippi and Louisiana, which are still recovering from Hurricane Katrina, had the highest delinquency rates for subprime loans in the nation — 24.6 percent and 22.5 percent, respectively.
If the effects of Hurricane Katrina were removed from national statistics, the nationwide delinquency rate would be 4.34 percent instead of 4.39 percent. That’s not as big an adjustment as in the last quarter, indicating Hurricane Katrina’s effects on the delinquency rate are gradually lessening.
Ironically, a reduction in the number of loans that are 90 days or more past due in hurricane-ravaged states actually helped drive the overall delinquency rate down. As the owners of damaged homes sell them, take out new loans to rebuild them, or settle long-running disputes with insurance companies, their old delinquent loans are retired.
The percentage of loans nationwide that were 90 days overdue was down 10 basis points from the first quarter, to .91 percent. The percentage of delinquent VA loans was also down by 58 basis points to 6.35 percent, helping drive down the overall delinquency rate.
Nevertheless, the hardest-hit Gulf states continue to have the highest percentage of loans that are either 90 days more past due, or in foreclosure. Some 6.8 percent of loans in Louisiana are seriously delinquent or in foreclosure, and the number is 6.5 percent in Mississippi. Ohio, with 4.7 percent of loans in the same category, and Indiana, at 4.3 percent, were also well above the national average.
Other loans that saw significant increases in delinquency rates included FHA loans, up 8 basis points to 12.3 percent, and prime adjustable-rate mortgage loans, up 40 basis points to 2.7 percent.
Duncan said homeowners with adjustable-rate mortgages could end up in delinquency when their payments increase but their homes haven’t appreciated enough for them to refinance or sell.
Although Duncan acknowledges that homes will appreciate at a reduced rate in 2007, he does not foresee an “order of magnitude shift” in delinquencies.