An increase in delinquencies on subprime and FHA-backed loans helped push the overall delinquency rate on all mortgage loans up 28 basis points in the third quarter, to 4.67 percent, the Mortgage Bankers Association said Wednesday.
The increase in delinquencies took place across the board for all major loan types, but was noticeably larger for subprime loans — particularly subprime ARMs, said MBA Chief Economist Doug Duncan.
Duncan said that although payment performance “has deteriorated somewhat from the very strong performance of recent years,” the market is responding to changing economic conditions. He urged lawmakers not to take regulatory or legislative action that would impede an efficient market.
The increase in delinquency in subprime loans “is not surprising given that subprime borrowers are more likely to be susceptible to the cumulative increases in rates we’ve experienced, and the slowing of home price appreciation that has resulted,” Duncan said of the results of MBA’s National Delinquency Survey.
The survey, which covers more than 42.6 million first-lien mortgages on one- to four-unit residential properties, revealed that the third-quarter delinquency rate for subprime ARMs increased by 98 basis points from the previous quarter, with 13.22 percent of all such loans past due. That’s a 267-basis-point increase from the same quarter in 2005. Prime ARMs saw a less dramatic 36-basis-point increase in delinquencies in the third quarter, to 3.06 percent.
The delinquency rate for FHA loans was up 35 basis points for the quarter to 12.8 percent, while the percentage of VA loans past due was up 23 basis points to 6.58 percent.
Further increases in delinquency and foreclosure rates are expected in the quarters ahead before the housing market fully regains its footing in the middle of 2007, Duncan said
In arguing against tighter regulations, MBA’s chief economist said there is no evidence that the increases in delinquency and foreclosure rates are the result of nontraditional loans such as interest-only or payment-option mortgages, and that market forces are curbing their use.
Investors are demanding higher returns, and widening credit spreads in the secondary market mean higher rates for borrowers, Duncan said. Lenders reduce credit to less creditworthy and subprime borrowers first, he said.
In keeping with past trends, the survey showed fixed-rate mortgages continue to have lower delinquency rates than adjustable-rate loans, and fixed-rate loans also saw less dramatic increases during the third quarter.
The delinquency rate for prime, fixed-rate mortgages inched up 10 basis points in the third quarter, to 2.1 percent, while 9.56 percent of subprime fixed-rate mortgages were past due, a 35 basis-point increase from the second quarter.
For all loan types, the states with the highest overall delinquency rates were Mississippi (11.05 percent), Louisiana (9.5 percent), and Michigan (6.68 percent). The states with the largest increase in overall delinquency rate in the past year were Michigan (135 basis points), Rhode Island (128 basis points), and Ohio (96 basis points).
The survey also looked at new foreclosures and the foreclosure inventory rate.
States with the highest foreclosure inventory rates across all loan types were Ohio (3.32 percent), Indiana (2.9 percent), and Michigan (2.2 percent). States with the largest annual increase in foreclosure inventory rate were Michigan (59 basis points), Rhode Island (46 basis points), and Maine (43 basis points).
By loan type, the percent of new foreclosures increased one basis point for prime loans (to 0.19 percent), three basis points for subprime loans (to 1.82 percent), and four basis points for FHA loans (to 0.79 percent). The percent of new foreclosures for VA loans decreased three basis points to 0.32 percent.
The foreclosure inventory rate was up across all loan types. For prime loans, the foreclosure inventory rate increased three basis points to 0.44 percent. The foreclosure inventory rate for subprime loans was up 30 basis point to 3.86 percent, eight basis points for FHA loans to 2.28 percent, and two basis points for VA loans to 1.12 percent.