Overdues at 5-Year Low

Overall, home loan delinquency rates have fallen to the lowest level in half a decade, and they may be poised to go even lower, according to the Mortgage Bankers Association.

As of March 31, 4.31% of home loans were 30 days or more past due, down 15 basis points from one year earlier, according to the MBA. Moreover, that was the lowest delinquency rate since the second quarter of 2000. The overall delinquency rate has been on a downward trajectory since late 2001.

However, not all news on the delinquency front was good. The American Bankers Association recently reported an increase in home equity delinquencies.

The delinquency rate for closed-end home-equity loans held by banks increased six basis points from the fourth quarter to 2.43% in the first quarter of 2005, according to the ABA. The delinquency rate on home-equity lines of credit increased seven basis points to 0.40%.

But for first lien home loans tracked by the MBA, the improvement was widespread. Foreclosure rates, like delinquency rates, were down from the previous quarter as well as the first quarter of 2004. The percentage of loans in the foreclosure process fell 21 basis points from a year earlier to 1.08% at the end of the first quarter, also the lowest level posted since the second quarter of 2000.

On a seasonally adjusted basis, 0.42% of loans entered the foreclosure process during the quarter, down five basis points from a year earlier.

Despite the improvement, MBA economist Doug Duncan noted in a conference call that the current delinquency rate is about average for the last 20 years.

But Mr. Duncan said the good news may continue into future quarters. Strong economic growth and a growing job base coupled with low interest rates have allowed consumers to improve their household finances, he said.

"Economic growth is expected to remain strong over the next couple of years. Likewise, job growth should be steady in the presence of modest interest rate rises. These expectations likely mean we will continue to see moderate declines in delinquencies for the next few quarters."

Countering these positives, however, are some potential problems. The share of subprime credit quality loans continues to rise, the huge volume of loans originated between 2002 and 2004 have yet to enter their peak period of default risk, and new adjustable-rate and interest-only products have yet to be tested over the long-term.

Even the much maligned FHA saw some upside, with the delinquency rate falling from 12.23% at the end of 2004 to 11.73% at the end of this year's first quarter. However, the FHA overdue rate was up three basis points from the first quarter of 2004.

And adjustable-rate mortgages are holding up well. The seasonally adjusted delinquency rate for prime, adjustable-rate mortgages was down 22 basis points from a year earlier, landing at 2.06% at the end of the first quarter. Prime fixed-rate mortgages saw their delinquency rate edge up from 2.00% to 2.02% during that period.

The delinquency rate for subprime ARMs fell from 10.99% to 10.25%. For subprime credit quality FRMs, the delinquency rate fell from 10.63% to 9.10%.

The MBA's delinquency survey has grown dramatically in recent years, and now covers 39.4 million first-lien mortgages, an increase of 1.8 million from one year earlier. Subprime loans account for 5.1 million of the total.

"We have been working hard to create a broad coverage of the market, and we now have over 80% of all loans," Mr. Duncan said.

In addition, the MBA has started compiling "serious delinquency" rates in the quarterly survey. Serious delinquencies are defined as loans that are at least 90 days past due or in foreclosure. In the first quarter, 1.89% of all home loans were "seriously delinquent," down 25 basis points from a year earlier.

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