FHA ARM Delinquencies Hit Record

The delinquency rate for Federal Housing Administration-insured adjustable-rate mortgages hit an all-time high in the second quarter, according to statistics released Wednesday by the Mortgage Bankers Association.The seasonally adjusted delinquency rate for FHA ARMs was 9.35% at June 30 -- a 204-basis-point increase over the past 12 months and a 63-bp rise from the first quarter. The Department of Housing and Urban Development is already working to reduce delinquencies by placing restrictions on "teaser" rates and buydowns that lenders offer borrowers on FHA-insured ARMs. "But it is going to take awhile before those controls start to take hold," said MBA executive vice president Paul Reid. HUD is expected to endorse up to 237,107 ARMs in fiscal 1998. Government-backed ARMs are popular because they generate higher fees compared to a conventional 'A' paper loan. In addition, FHA ARMs are used to qualify low-income borrowers who otherwise would not be able to obtain a mortgage. However, the vast majority of FHA mortgages are fixed-rate. Data show that the total number of FHA FRMs past due has risen 35 bp year-over-year to 6.80%. The MBA said the overall residential delinquency rate, which includes both conventional and government product, was 4.33% in the second quarter -- an increase of 8 bp over the past year.