Interest Rate Roundup

Thursday, June 14, 2007

Mortgage Bankers Association figures show a major foreclosure problem

The Mortgage Bankers Association releases a quarterly report on delinquencies and foreclosures. It covers prime, subprime, and government-backed mortgages, including FHA and VA loans. So what did this report show for the first quarter?

* The share of loans on which lenders began foreclosure proceedings climbed to 0.58% in the first quarter. That was up from 0.54% in the fourth quarter, 0.42% a year earlier, and the highest level in history.

* The overall foreclosure rate (which includes loans in foreclosure already AND those entering the process) climbed to 1.28% from 1.19% in Q4 2006 and 0.98% in Q1 2006. That's the highest for this series since Q1 2004. The high, for perspective's sake, was 1.51% in Q1 2002.

* The overall delinquency rate actually dipped slightly quarter-over-quarter -- to 4.84% in Q1 2007 from 4.95% in Q4 2006, which was the highest since Q2 2003. On a year-over-year basis, the DQ rate was up from 4.41% in Q1 2006.

* By loan type, prime mortgage delinquencies increased to 2.58% from 2.57% in Q4 2006 and 2.25% a year earlier. That's the highest reading since Q2 2003 (2.60%). DQs on subprime loans jumped to 13.77% from 11.50% a year earlier. That's the worst DQ rate since Q3 2002 (14.39%). The improvement in overall DQ rates stemmed from improvement in the performance of FHA and VA loans.

What happens when you lend too many borrowers too much easy money? You get rising delinquencies (from a year earlier) and record foreclosure starts. We now have the highest subprime delinquency rate since late 2002 and the highest prime delinquency rate since mid-2003. The improved performance of FHA and VA loans, which drove the delinquency rate down from the fourth quarter, is slightly more encouraging. But those mortgage programs capture a much smaller part of the market than they used to.

As for foreclosures, they're either already high or climbing in two types of housing markets: Those with weak employment and economic growth, like Ohio, Michigan, and Indiana, and those with rampant speculation during the boom, including California, Florida, Nevada, and Arizona. Given the large overhang of unsold homes, slumping prices, and relatively weak sales, we likely haven't seen the worst of this foreclosure wave.


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