MBA releases 4th quarter 2004 delinquency survey
By MortgageDaily.com staff
3/18/2005

Mortgage delinquency fell during the fourth quarter -- with subprime ARMs leading the decline, the real estate finance industry's association reported.

The fourth quarter seasonally adjusted delinquency rate for one-to-four-unit residential loans was 4.23% -- plunging 18 basis points from the previous quarter and 26 BPS from a year earlier, according to the Mortgage Bankers Association's latest National Delinquency Survey.

The delinquency rate for prime fixed-rate mortgage loans of 2.04% dropped 11 BPS from the third quarter and 7 BPS from one year ago. The annual difference was more notable in prime adjustable-rate mortgages -- the delinquency rate of 2.11% decreased 12 BPS from the previous quarter and a whopping 70 BPS from the fourth quarter 2003, MBA said.

But the drop in ARM delinquency may be the result of an increase in ARM share -- currently near a third. As the amount of ARMs outstanding increases, recent originations may not have had a chance to default. Also, with low initial teaser rates on many variable rate loans, borrowers defaults are more likely to occur when upward rate adjustments push payments up.

The reported decreases were even more pronounced for subprime loans -- a sector that has seen phenomenal growth since refinances have withered. Subprime fixed-rate mortgage delinquency of 9.07% sank 60 BPS from the third quarter and plunged 143 BPS from a year earlier. With subprime ARMS, the delinquency rate of 9.52% fell 70 BPS from the previous quarter and dove 338 BPS from the fourth quarter a year ago.

MBA chief economist Doug Duncan pointed out during the fourth quarter the economy grew at almost 4 percent in annualized real terms, adding about 190,000 payroll jobs per month.

"Combined with the low interest rate environment, consumers improved their household finances and the percentage of homeowners making their mortgage payments on time increased to nearly 96 percent," Duncan added. "Economic growth is expected to slow slightly, but remain strong over the next couple of years. Likewise, job growth should be steady in the presence of modest interest rate rises. These expectations likely mean we will continue to see moderate declines in delinquencies for the next few quarters."

The percentage of loans in the process of foreclosure at the fourth quarter's end was 1.12% -- the lowest since third quarter 2000 -- edging down 2 BPS from the previous quarter and dropping 17 BPS from a year ago. Year-over-year, the foreclosure inventory percentage decrease for all types of loans, but the greatest was for subprime loans, which sunk 165 BPS to 3.98%, MBA said.

The rate of loans entering the foreclosure process, however, which is considered the trend indicator, rose 5 PBS from the third quarter to 0.44% and stands just 1 BPS below the figure in the fourth quarter a year earlier. Since the third quarter, the percentage of new foreclosures increased for all loans, except for VA loans, which decreased 3 BPS to 0.48%. Compared to a year earlier, new subprime loans in foreclosure had the greatest decrease -- 63 BPS to 1.47% -- while the only increase occurred in FHA loans, which jumped 14 BPS to a record high of 1.05%.

The survey reportedly covers 38.7 million first-lien mortgages on one-to-four-unit residential properties and more than 4.2 million subprime loans.

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