Are B&C Delinquencies Falling?

Subprime mortgage delinquencies declined modestly in the fourth quarter of last year, but the trend still may be toward higher delinquencies, according to data compiled by LoanPerformance here.

While the serious delinquency rate on subprime loans, after tapering off late last year, may be heading up again, the San Francisco-based research firm said that early indications are that loans originated last year are performing better than their peers.

In fact, LoanPerformance senior vice president Sheila Meagher says that the book of subprime loans originated in 2002 "appears to be the best performer of all recent vintages."

At the 12-month mark, loans originated last year have a serious delinquency rate of 1.08%, a 38 basis point improvement from the 1999 vintage's rate at a similar point in time. Early delinquencies are often harbingers of a vintage's long-term performance.

Overall, serious delinquencies on subprime loans were down in the fourth quarter of last year, falling by 15 basis points from the third quarter to 6.81% in the fourth, according

to LoanPerformance. However,

Ms. Meagher said the serious delinquency rate has started to edge back up according to

numbers LoanPerformance has received early this year.

And some states and cities continue to see rising levels of subprime delinquencies. Wisconsin, Mississippi and Illinois experienced large increases in subprime delinquencies in the fourth quarter, according to LoanPerformance.

Moreover, a weak economy diminishes the changes that a seriously delinquent loan - 90 or more days past due - will be brought current.

"In a down economy, you don't see as many cures,"

Ms. Meagher told MSN.

Indiana, Kentucky, Ohio, North Carolina, South Carolina, Mississippi and Utah were the states with the highest subprime delinquencies in the fourth quarter, according to LoanPerformance.

Similarly, the Mortgage Bankers Association of America, which recently started separating the performance of loans managed by subprime mortgage servicers from prime mortgage servicers, saw evidence of improvement late last year. However, MBA chief economist Douglas Duncan said the MBA's database from subprime lenders is still not large enough to be considered indicative of the entire industry.

The MBA also reported that the delinquency rate on subprime mortgages in its database fell substantially in the fourth quarter to 13.29%, a 99 basis point decline from the previous quarter.

However, Mr. Duncan said the MBA is still building its subprime database and that the sample is not representative of the entire industry at this time. In addition, new companies joining the database may affect movement from quarter to quarter.

The MBA's main database for conventional and government-backed delinquencies tracks some 34 million home loans. The subprime database currently includes 1.3 million loans.

And Mr. Duncan said early economic indications from 2003 "give us some pause," suggesting that the recovery in

overall delinquency rates could falter if the economy doesn't stabilize and grow.

Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com, http://www.mortgageservicingnews.com

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