Mortgage Delinquencies Down

The latest data from the Mortgage Bankers Association (MBA) provide some encouraging news about homeowner finances. The percent of Americans who were delinquent 30 days or more on their home mortgages dropped to 4.53% at the end of the fourth quarter of 2002, down 14 basis points from a year earlier. Delinquency rates fell across all categories of severity. The biggest decline was observed for FHA loans, which are significantly higher risk than conventional mortgages. FHA loan delinquency was 11.45%, as compared to 2.65% for conventional prime loans. Although the delinquency rate has fallen over the past year, the overall index remains well above the most recent trough achieved in the first quarter of 2000 (3.65%).

Separately, the MBA's new index of subprime loan performance revealed that 13.29% of conventional subprime loans were delinquent in the fourth quarter of 2002, down 118 basis points from one year earlier. These statistics are based on a pool of 1.3 million subprime loans.

Tempering this good news somewhat was the finding that the percent of loans in foreclosure rose slightly from a year earlier. The inventory of loans in the process of foreclosure as a percent of all mortgage loans was 1.18% at the end of 2002, up 14 basis points from a year earlier.

Some economists caution that the delinquency numbers may be biased downward because of the surge in new mortgages over the past several years. Mortgages take some time to season, and the percent of all loans delinquent may be artificially depressed simply by adding lots of new loans to the calculation. Time will tell.

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