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Survey Says: Delinquencies and Foreclosures Increase

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RISMEDIA, Dec. 10, 2007-The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.59% of all loans outstanding in the third quarter of 2007 on a seasonally adjusted (SA) basis, up 47 basis points from the second quarter of 2007, and up 92 basis points from one year ago, according to MBA’s National Delinquency Survey.

The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 1.69% of all loans outstanding at the end of the third quarter, an increase of 29 basis points from the second quarter of 2007 and 64 basis points from one year ago.

The rate of loans entering the foreclosure process was 0.78% on a seasonally adjusted basis, 13 basis points higher than the previous quarter and up 32 basis points from one year ago.

The total delinquency rate is the highest in the MBA survey since 1986. The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever.

The increase in foreclosure starts was due to increases for all loan types. From the previous quarter, prime fixed rate loan foreclosure starts increased 4 basis points to 0.22%, prime ARM foreclosure starts increased 40 basis points to 1.02%, subprime fixed foreclosure starts increased 3 basis points to 1.38%, subprime ARM foreclosure starts increased 88 basis points to 4.72%, and FHA foreclosure starts increased 16 basis points to 0.95%.

Since the third quarter of 2006, the foreclosure start rates for prime ARMs increased from 0.30% to 1.02% and the rate for subprime ARMs increased from 2.19% to 4.72%. The foreclosure starts rate for prime fixed loans increased from 0.13% to 0.22% and the rate for subprime fixed loans have increased from 0.97% to 1.38%.

As can be seen in the chart below, while subprime ARMs only represent 6.8% of the loans outstanding, they represent 43.0% of the foreclosures started during the third quarter.

Florida and California are the two largest states in terms of mortgages outstanding and are the key drivers of the increase in the national foreclosure rates. While California and Florida together have 36.4% of all of the prime ARM loans in the country, they had 42.4% of the nation’s foreclosure starts for prime ARMS. Similarly, California and Florida together have 28.1% of the subprime ARMs and 33.7% of foreclosure starts for subprime ARMs.

Florida, Ohio, Michigan and Indiana have 16.4% of the prime fixed loans in the country but 29.3% of the foreclosures started on prime fixed loans, and 18.9% of the subprime fixed rate loans and 26.3% of the foreclosure starts.

Doug Duncan, MBA’s Chief Economist and Senior Vice President of Research and Business Development, said,

As conditions in the housing finance market continue to deteriorate, several factors are clear:

- This is the first quarter which registers the full combined effects of the seizure of the nonconforming securitization market, broad-based home price declines, continued weakness in some regional economies and rate adjustments on monthly payments. The predictable results are increased delinquency and foreclosure.
- In areas where the supply of homes far exceeds demand at current prices, home prices are falling and leading to more foreclosures. In Michigan and Ohio the problem continues to be the declines in demand due to drops in employment and population that have left empty houses in cities like Cleveland, Detroit and Flint. In states like California, the problem is excess supply due to speculative over-building and properties coming back onto the market.
- While subprime ARM delinquencies and foreclosures are climbing in all states, in most states the actual number of loans involved is fairly modest. For example, the number of subprime ARM foreclosure starts in California during the third quarter equaled the starts in 35 other states combined.
- While this quarter’s numbers show the highest level of foreclosure starts (on a seasonally adjusted basis) for prime fixed rate mortgages in the last 10 years, that increase is largely due to increases in Florida, Ohio, Michigan and California. In most states the increase in prime fixed rate foreclosure starts is due to borrowers who will fall behind on their payments for the traditional reasons (employment, medical, marital, etc.) but who cannot sell their homes due to market conditions.”

Change from last quarter (second quarter of 2007)

The SA delinquency rate increased 39 basis points for prime loans (from 2.73% to 3.12%), 149 basis points for subprime loans (from 14.82% to 16.31%), 34 basis points for FHA loans (from 12.58% to 12.92%), and increased 43 basis points for VA loans (from 6.15% to 6.58%).

The foreclosure inventory rate increased 20 basis points for prime loans (from 0.59% to 0.79%), and increased 137 basis points for subprime loans (from 5.52% to 6.89%). FHA loans saw a seven basis point increase in foreclosure inventory rate (from 2.15% to 2.22%), while the foreclosure inventory rate for VA loans increased one basis point (from 1.02% to 1.03%).

The SA foreclosure starts rate increased 10 basis points for prime loans (from 0.27% to 0.37%), 40 basis points for subprime loans (from 2.72% to 3.12%). The foreclosure start rate increased 16 basis points for FHA loans (from 0.79% to 0.95%) and two basis points for VA loans (from 0.37% to 0.39%).

The seriously delinquent rate, the non-seasonally adjusted (NSA) percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process. During the third quarter, the seriously delinquent rate increased for prime, subprime, FHA, and VA loans. The rate increased 33 basis points for prime loans (from 0.98% to 1.31%), 211 basis points for subprime loans (from 9.27% to 11.38%), 36 basis points for FHA loans (from 5.18% to 5.54%) and 21 basis points for VA loans (from 2.35% to 2.56%).

Change from last year (third quarter of 2006)

On a year over year basis, the SA delinquency rate increased for prime, subprime, and FHA loans and was unchanged for VA loans. The delinquency rate increased 68 basis points for prime loans, increased 375 basis points for subprime loans, and increased 12 basis points for FHA loans.

The foreclosure inventory rate increased 35 basis points for prime loans and 303 basis points for subprime loans. The foreclosure inventory rate decreased six basis points for FHA loans and nine basis points for VA loans.

Over the year, the SA foreclosure starts rate increased 32 basis points overall, 18 basis points for prime loans, 130 basis points for subprime loans, 16 basis points for FHA loans, and seven basis points for VA loans.

The seriously delinquent rate was 52 basis points higher for prime loans and 460 basis points higher for subprime loans. The rate decreased 12 basis points for FHA loans and 8 basis points for VA loans.

For more information, visit www.mortgagebrokers.org.

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