The Mortgage Bankers Association (MBA) released its quarterly National Delinquency Survey for the second quarter last week.
The MBA reported that delinquencies on a seasonally adjusted basis increased 28 basis points to 5.12% from 4.84%. Increases were recorded for prime, subprime and Federal Housing Authority (FHA) loans, while delinquencies on Department of Veterans Affairs (VA) loans fell 34 basis points to 6.15%. Specifically, the delinquency rate on prime loans rose 15 basis points to 2.73%, 105 basis points to 14.82% on subprime and 43 basis points on FHA loans to 12.58%.
The MBA also noted that the SA delinquency rate increased 73 basis points year over year, with prime up 44 basis points, subprime up 312 basis points and FHA loans up 13 basis points. But the rate fell 20 basis points for VA loans.
The percent of loans that were delinquent 90 days or more was 2.47%, up 24 basis points from the first quarter, and 58 basis points higher versus the second quarter of 2006. Gains were seen in prime (nine basis points to 0.98%) and subprime (94 basis points to 9.27%), and fell eight basis points to 5.18% for FHA and 10 basis points to 2.35% for VA. The gains in serious subprime delinquencies came in ARM loans, as serious delinquencies on fixed-rate subprime loans declined in the quarter. For prime loans, the seriously delinquent rate increased on ARMs but was essentially steady on fixed rate.
Forclosures also increased, with the percentage of loans entering the process rising seven basis points to 0.65% in the second quarter and up 22 basis points year over year. By loan type, the foreclosure start rate for prime loans in the second quarter rose two basis points to 0.27% and jumped 29 basis points to 2.72% for subprime, while declines were seen for FHA (from 0.90% to 0.79%) and VA loans (from 0.41% to 0.37%).
The percentage of loans in the foreclosure process at the end of the second quarter was up 12 basis points to 1.40 basis points and 41 basis points higher versus the second quarter of 2006, the MBA reported. In the second quarter, prime and subprime loans increased five basis points and 42 basis points, respectively, while FHA and VA loans were lower by four basis points and three basis points.
The MBA noted that, as in the first quarter survey, delinquency and foreclosure rates are being driven by activity in a few large states. "What continues to drive the national numbers is what is happening in the states of California, Florida, Nevada and Arizona," said Doug Duncan, MBA's chief economist. Were it not for the increases in foreclosure starts in those four states, he added, the market would have seen a nationwide decrease in the rate of foreclosure filings. Thirty-four states had decreases in their rates of new foreclosure, and increases were very modest in the others, Duncan said.
In addition, the performance of prime and subprime ARMs is contributing significantly to overall results, the MBA said. "There is a clear divergence in performance between fixed-rate and adjustable-rate mortgages due to the impact of rate resets," Duncan said, adding that while the seriously delinquent rate for prime fixed loans was essentially unchanged from the first quarter of the year to the second, and the rate actually fell for subprime fixed-rate loans, the rate increased 36 basis points for prime ARM loans and 227 basis points for subprime loans.
Duncan said, however, that it wasn't clear whether subprime ARM loans are causing the problems for California, or if California is causing the problems for subprime loans. California has 17% of the subprime ARMs in the country and more than 19% of the foreclosure starts on subprime ARMs. "The four states of California, Florida, Nevada and Arizona have more than one-third of the nation's subprime ARMs, more than one-third of the foreclosure starts on subprime ARMs, and are responsible for most of the nationwide increase in foreclosure actions," he said.
The outlook for these four states is not encouraging, either, Duncan said. Declining home prices make refinancing ARM loans difficult, he pointed out, and inventory levels are high in the states with a disproportionate share of investor loans. Borrowers owning investor properties are much more likely to default on their mortgages if they see the value of their investments falling due to falling home prices, the MBA said.
Indeed, as of June 30, the nonowner-occupied share of defaulted loans (90 days or more past due or in foreclosure) was 32% in Nevada, 25% in Florida, 26% in Arizona and 21% in California, compared with 13% in the rest of the country, the MBA said.
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