Foreclosures Drop, But Delinquencies Hold Steady
Lenders reported a substantial decline in the foreclosure rate for the second quarter, even as lenders saw a slight increase in overall delinquencies from the first quarter. The Mortgage Bankers Association reported that the percentage of loans in foreclosure dropped eight basis points from the first quarter to 1% in the second quarter. That rate was 18 basis points lower than the foreclosure rate one year earlier.
Historically, the foreclosure inventory has ranged from a low of 0.27% in 1979 to a high of 1.51% in early 2002.
Mr. Duncan said a figure of 1% is positive news, especially in light of structural changes in the nature of mortgage loans outstanding that suggest foreclosure averages may be higher than in the past. "You don't have to go back even a decade to see that the subprime share of outstanding loans was much lower as a percentage of the market than it is today," he said during a conference call with reporters.
Subprime mortgages account for 13.4% of the loans in the MBA's national delinquency survey today, up from 2.4% in 1998.
Lenders also saw fewer loans entering foreclosure in the second quarter. The seasonally adjusted rate of foreclosure starts fell to 0.39% in the second quarter, down three basis points from the first quarter rate and one basis point lower than in the second quarter of last year.
Overall, 4.34% of home loans were at least 30 days delinquent in the second quarter, up three basis points from the first quarter but still 22 basis points lower than a year earlier. But the second quarter national delinquency survey contains some dark clouds as well, even before the possible impact of Hurricane Katrina is taken into account. In the North Central region of the country, the overall delinquency rate was up five basis points compared to a year earlier, as the loss of manufacturing jobs hit states like Ohio, Michigan and Indiana hard. That region also faces the burden of paying higher energy prices related to home heating needs this winter.
Mr. Duncan said the mortgage industry may be at or near a cyclical low point in delinquency rates coming out of the recession that caused delinquencies to rise in the 2000 and 2001 period. He noted that the impact of Hurricane Katrina won't be felt until third- and fourth-quarter delinquency statistics are released. "In addition, higher energy costs may exacerbate delinquency rates starting in the fourth quarter," he said.
But for the moment, most of the news is good. Delinquency rates, compared to a year ago, are down for both fixed- and adjustable-rate loans, for both conventional and government-guaranteed loan categories.
Economic growth has generated payroll job creation at a rate of about 205,000 jobs a month in the second quarter, helping many households improve their balance sheets, Mr. Duncan noted.
SNAPSHOT: Mortgage Delinquency Rates in the Second Quarter
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