Warning Signs Crop Up

While a "freshening effect" from refinancing activity has helped bring delinquency rates down for prime and subprime loans, a mortgage data firm here sees early warning signs of trouble for some markets.

The good news is that LoanPerformance has seen delinquency rates have trend downward since March.

Serious delinquencies on subprime loans- those 90 days or more past due - have declined steadily in recent months. In May, the serious delinquency rate was 7.61%, down from a recent peak of 8.38% in January of 2002.

The five states with the worst performing subprime mortgage loans for recent originations were Utah, South Carolina, Mississippi, Ohio and Oklahoma, according to LoanPerformance's database.

The San Francisco-based research company is not the only source of information that suggests the delinquency rate on B&C loans is falling. Recently, the Mortgage Bankers Association of America, which has started tracking delinquency rates among predominantly subprime lenders, reported that 12.4% of subprime loans were at least 30 days late in the first quarter, down from a delinquency rate of 14% a year earlier. However, the MBA cautions that it is still building its database, and changes in the composition of firms participating in the survey may affect the numbers.

The serious delinquency rate on prime loans has been declining since December of last year, the company said.

Sheila Meagher, vice president of market research at LoanPerformance, said that mortgage delinquencies have benefited from a "freshening effect" as refinancing brings down the average age of loans outstanding. The freshly underwritten loans have not reached their peak age of seasoning for delinquency and default risk, she said.

It may take 18 to 22 months to see the effects of loan seasoning take effect as loans enter the period of greatest default risk, she said.

Meanwhile, the early performance of loans originated in 2002 is providing a peak into what metropolitan markets and regions are facing the most stress.

"The whole Rust Belt is suffering, and we are seeing that also spread throughout the South and kind of the Southeast more," Ms. Meagher said. Utah, Mississippi, Georgia and South Carolina, for instance, all have serious delinquency rates that are at least two times higher for subprime loans than the national average for the 2002 vintage of loans.

Nationally, LoanPerformance reported that 1.08% of prime mortgage loans were delinquent in May, down from 1.13% in March. But Ms. Meagher said that recently originated loans are not performing well in all geographic areas. In the database for prime loans, LoanPerformance can analyze individual metropolitan markets.

Markets that show early indications of possible delinquency and default trouble, based on the performance of prime loans originated last year, include Greenville, N.C., Dayton, Ohio, Indianapolis, San Antonio and Dallas, according to LoanPerformance.

Ms. Meagher said that job losses in the telecom sector have hurt some markets in Texas and Georgia.

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