Delinquencies Soar Nine Percent in Second Quarter

Written by: Steve Cook   Thu, August 20, 2009 Beyond Today's News, Foreclosure Situation

Just when you think the foreclosure picture can’t get any worse, it does. MBA’s quarterly delinquency survey set another distressing record today.

Delinquencies rose to a seasonally adjusted rate of 9.24 percent of all loans outstanding as of the end of the second quarter of 2009, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago.  The non-seasonally adjusted delinquency rate increased 64 basis points from 8.22 percent in the first quarter of 2009 to 8.86 percent this quarter.

What’s even more serious is the changing nature of delinquencies and foreclosures.  The percentage of those caused by ARMs and high risk subprime loans that can be successfully modified by lowering monthly payments-the strategy adopted by the Administration-are declining.  Delinquencies caused by unemployment, which are much more difficult to modify so that borrowers can stay in their homes, are clearly on the rise.

“While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans.  The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts.  A year ago they accounted for one in five.  While 41 states had increases in the foreclosure start rate for prime fixed-rate loans, 43 states had decreases in that rate for subprime adjustable-rate loans,” said Jay Brinkmann, MBA’s Chief Economist.

MBA also found a major jump in FHA foreclosures, another sign of economic distress.  The percentage of loans with foreclosures started, the percentage of loans in foreclosure and the percentage of loans 90 days or more past due all set records for FHA in the second quarter.  While the foreclosure starts rate for FHA loans at 1.15 percent is lower than all other loan types with the exception of prime fixed-rate loans, the FHA percentages have remained low due to a large increase in the number of loans outstanding, the so-called “denominator effect”.  If the number of FHA loans had stayed the same as a year ago and we saw the same number of foreclosures, the FHA foreclosure rate would be almost 1.5 percent, MBA said.

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