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Drop in Subprime ARM Foreclosures

WASHINGTON—Mortgage delinquencies will peak by the middle of next year, and foreclosures by the end of 2010, according to predictions made by the Mortgage Bankers Association. Although delinquencies for residential properties continued to climb in the second quarter of this year, the rate of new foreclosures started was essentially unchanged from last quarter’s record high, according to MBA’s national delinquency survey.

The MBA said the delinquency rate breaks the record set in the second quarter. The records are based on MBA data dating back to 1972. The delinquency rate includes loans at least one payment past due but does not include loans somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 4.3%, an increase of 45 basis points from the first quarter of 2009 and 155 basis points from one year ago.

The delinquency rate for mortgage loans on one-to-four unit residential properties rose to a seasonally adjusted rate of 9.24% of all loans outstanding as of the end of the second quarter, up 12 basis points from the first quarter of 2009, and up 283 basis points from one year ago, according to the MBA. The non-seasonally adjusted delinquency rate increased 64 basis points from 8.22% in the first quarter of 2009 to 8.86% this quarter.

The combined percentage of loans in foreclosure and at least one payment past due was 13.2% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey. The percentage of loans on which foreclosure actions were started during the second quarter was 1.36%, down one basis point from last quarter and up 28 basis points from one year ago. The percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter. The percentage of loans 30 days past due is still well below the record set in the second quarter of 1985.

The delinquency rate for mortgage loans on one-to-four unit residential properties rose to a rate of 9.24% of all loans outstanding at the end of the second quarter, up 12 basis points from the first quarter and up 283 basis points from the second quarter of 2008. The percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter. The percentage of loans 30 days past due is still well below the record set in the second quarter of 1985. The percentage of loans in the foreclosure process at the end of the second quarter was 4.3%, up 45 basis points from the first quarter of 2009 and 155 basis points from one year ago.

The combined percentage of loans in foreclosure and at least one payment past due was 13.16% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey. The percentage of loans where foreclosure actions were started during the second quarter was 1.36%, down one basis point from last quarter and up 28 basis points from one year ago.

MBA’s chief economist Jay Brinkmann said that the flat foreclosure figures are due to many factors, from the dramatic shift away of subprime ARMs to prime, fixed-rate loans.

“Foreclosures for the start of the second quarter were basically flat. But keep in mind that in 2008 foreclosures were also flat. They jumped in the first quarter of this year,” said Mr. Brinkmann. “There was a major drop in foreclosures on subprime ARM loans,” he added. “The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase.”