MBA: Delinquencies, foreclosures rise again in Q4 2007

The latest delinquency and foreclosure figures from the Mortgage Bankers Association were released this morning. Here's the story they told about mortgage performance in the fourth quarter of 2007:

* The overall mortgage delinquency rate jumped to 5.82% from 5.59% in Q3 2007 and 4.95% in Q4 2006. This is the worst late payment rate going all the way back to 1985.

* The subprime DQ rate jumped again -- to 17.31% from 16.31% in Q3 2007 and 13.33% in Q4 2006. But it's NOT just subprime loans that are souring. The prime delinquency rate rose to 3.24% from 3.12% in Q3 2007 and 2.57% in Q4 2006.

* The worst deterioration was evident in adjustable rate loans. Prime fixed-rate DQs rose to 2.56% from 2.54% quarter-over-quarter (and from 2.27% in the fourth quarter of 2006), while prime ARM DQs jumped to 5.51% from 5.14% quarter-over-quarter (and from 3.39% a year earlier).

* Meanwhile, the DQ rate on fixed-rate FHA loans actually dropped to 12.04% from 12.24% in Q3 2007 and 12.24 in Q4 2006. FHA ARM DQs climbed to 13.05% from 12.92% a quarter earlier, but dipped from 13.46% a year earlier.

* Mississippi had the worst loan delinquency rate at 11.07%, followed by Michigan (8.97%), Georgia (8.37%) and Indiana (8.35%). Several western states had the lowest DQ rates, including Oregon (2.98%), North Dakota (3.05%) and Wyoming (3.1%).

* What about foreclosures? Time to hold your nose. The percentage of mortgages entering the foreclosure process climbed to 0.83% in Q4 2007 from 0.78% in Q3 2007 and 0.54% a year earlier. The percentage of overall loans in any stage of foreclosure (shown in the chart above) climbed to 2.04% from 1.69% in Q3 2007 and 1.19% in Q4 2006.

These are the worst readings on record. As you might expect, subprime ARMs are showing the worst relative performance, with a foreclosure rate of a whopping 13.43%, up from 5.62% a year earlier.

* Foreclosure inventory was the highest in Ohio (3.88%), Indiana (3.53%), Michigan (3.38%), Florida (3.22%) and Nevada (3.02%).

Mortgage credit quality is deteriorating fast. The overall foreclosure rate has essentially doubled in the past year and a half to a record high, while the overall loan delinquency rate is at a level we haven't seen in 23 years. The reasons are clear: ARM resets are driving loan payments higher. Home prices are falling. And frankly, many borrowers were given loans they really couldn't afford in the first place.

Late payment and foreclosure rates will likely continue to rise in 2008. For one thing, tightening credit market conditions and slumping home prices will shut off the refinance valve for more borrowers. For another, lackluster housing market conditions will prevent many sellers from getting out from under their burdensome debts.