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An oil pumpjack just outside Watford City, North Dakota. Photo: Bloomberg News
An oil pumpjack just outside Watford City, North Dakota. Photo: Bloomberg News
Partner Insights

Fracking Boom Makes North Dakota Mortgages Super-Safe

MAR 5, 2014 1:50pm ET
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Fracking may be very bad for the environment. But it has been very good for the mortgage recovery.

Even the quickest look at the latest delinquency and foreclosure numbers put out by the Mortgage Bankers Association shows North Dakota and Wyoming, which are in the midst of an oil boom, to be at or near the top in mortgage performance – meaning they rank at or near the bottom in many categories of fewest overdues and foreclosures.

The MBA shared with me state-level data and briefing materials from its latest national delinquency survey. Lowest foreclosure starts rate in the country for the fourth quarter of 2013? That would be North Dakota, at a tiny 20 basis points.

Lowest 30-day delinquency rate: Also North Dakota, at 1.56%. Lowest 90-plus day delinquency rate: North Dakota again, at 54 basis points. And rank North Dakota second to last in prime adjustable overdues, subprime fixed, subprime adjustable-rate and Department of Veterans Affairs mortgages at 90 days and over. For all categories of 90-day delinquency it is last or second to last.

Total overdues: Once again North Dakota is the lowest of all the states (throw in the District of Columbia), at 2.61%. At 55,566 mortgages serviced in the state, according to MBA, that would mean fewer than 1,400 mortgages are in any stage of delinquency there.

Pretty soon mortgage lenders may not have any overdue conventional fixed-rate borrowers in North Dakota. The Peace Garden State's 90-day plus delinquency rate for prime fixed-rate loans is a mere nine basis points. That would come to about 55 delinquent borrowers for the whole state (exactly half as big a group as my high school graduating class).

Neighboring Wyoming, another oil state, had the lowest percentage of prime adjustables 90 days or more overdue, at 82 basis points. Wyoming was also lowest in percent of all loans in foreclosure (63 basis points), as well as foreclosures for prime fixed (5 basis points) and prime adjustables (48 basis points).

With 74,991 mortgages serviced in Wyoming, those 5 basis points of prime fixed-rate mortgages overdue would come to about 37 borrowers. Add them in with the 9 basis point cohort of 55 from North Dakota and you still don't have as many people who graduated in my high school class.

The trade group says its survey includes 41 million single-family mortgages comprising 88% of all mortgages serviced in the country, so it is pretty comprehensive.

Aside from the benefit to servicers, home builders are in demand in Wyoming and North Dakota, where the western half of the state sits over enormous shale deposits.

David Crowe, chief economist of the National Association of Home Builders, says Wyoming and North Dakota currently are “well over” normal homebuilding demand (the baseline is the years 2000-2003). And it’s not just because of the oil boom. While oil and gas development have produced “solid growth,” the prospering oil states (he includes Oklahoma, Texas and Montana in the tally) “didn’t have the dramatic collapse the sand states, for instance, did,” Dr. Crowe says.

Here’s something that gave me pause. According to an item from time.com that MBA shared with me for context, the most expensive rental housing market in the United States right now isn’t Los Angeles or San Francisco or New York City. It’s Williston, N.D.

A 700 square foot apartment will set you back an average of $2400 a month in Williston. I’m not sure that beats Manhattan (rents in the other four boroughs must bring the city’s total down), but it’s a breathtaking amount for a city on the vast expanses of the Peace Garden State.

That's not to be confused with the Garden State, New Jersey, which is on the exact other end of the foreclosure spectrum from North Dakota, with 11.84% of its mortgages seriously delinquent or in foreclosure.

Mark Fogarty, Editor at Large at National Mortgage News, is starting a regular blog of analysis and commentary based on his 30 years covering the mortgage industry.

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