Mortgage Delinquency Rates Improve

The worst of the impact of the recent recession appears to have already been felt in portfolios. The first piece of good news we can report in this issue is an improved delinquency picture for the mortgage loan market. The Mortgage Bankers Association (MBA) reports that its seasonally adjusted delinquency rate for mortgages on one-to-four-unit residential properties in the second quarter 2003 was 4.52%, down 15 basis points from the same quarter a year earlier. Delinquency rates are calculated as a percent of loans, and exclude loans in the process of foreclosure. The overall delinquency rate includes performance of both prime and subprime conventional loans, as well as FHA and VA loans. Overall foreclosures started in the second quarter 2003 were down 8 basis points from a year earlier to 0.4%.

Digging deeper into the statistics, the biggest improvement was in subprime loans. The subprime loan data represent information from 13 companies including more than 1.4 million conventional loans. The MBA acknowledges that its sample is not statistically representative of the total subprime market. Nevertheless, it does represent a large portion of all subprime loans, making the trend encouraging. Subprime loans had a delinquency rate in the second quarter of 2003 of 12.99%, down 268 basis points from the second quarter of 2002. The prime conventional loan delinquency rate (based on a much larger sample of 26 million loans) was 2.62%, down just 4 basis points from the same quarter a year earlier.

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