MBA: Prime Fixed-Rate Loans Account For 1 In 3 Foreclosure Starts

Another record has been shattered, as 13.6% of borrowers in the U.S. were at least one payment past due at the end of the second quarter, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey.

On a non-seasonally adjusted basis, the delinquency rate (i.e., loans past due but not in foreclosure) for the second quarter was 8.86%, and the percentage of loans in the foreclosure process was 4.3%. Those numbers represent 64 and 45 basis-point (bp) increases from the first quarter, respectively.

The percentage of loans on which foreclosure actions were started during the second quarter was 1.36% – down one bp from last quarter and up 28 bps from one year ago.

The percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter. The percentage of loans 30 days past due is still well below the record set in the second quarter of 1985, the MBA says.

The group's chief economist, Jay Brinkmann, notes that a major drop in foreclosures on subprime adjustable-rate mortgages was offset by increases in foreclosure rates on other loan types, most notably prime fixed-rate loans, which accounted for one in three foreclosure starts. This time last year, prime fixed-rate loans made up one in five foreclosure starts.

The shift in performance among loan types is further evidence of the effect of job losses.

"[I]t is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves," Brinkmann says.

The four sand states – California, Florida, Arizona and Nevada – were home to 44% of the U.S.' new foreclosures during the second quarter, which is a drop from their 46% share in the first quarter.

"Florida continues to establish itself as the worst state in the union for mortgage performance, closely followed only by Nevada," Brinkmann adds. More than 22% of Floridians were past due or in foreclosure at the end of the second quarter – nearly double the national percentage if Florida's numbers are excluded.

The next highest states were Nevada (21.3%), Arizona (16.3%) and Michigan (15.3%).

Foreclosures on Federal Housing Administration (FHA) loans saw a "major jump" in the second quarter, Brinkmann says.

"While the foreclosure-starts rate for FHA loans at 1.15 percent is lower than all other loan types, with the exception of prime fixed-rate loans, the FHA percentages have remained low, due to a large increase in the number of loans outstanding – the so-called "denominator effect,'" he observes. "If the number of FHA loans had stayed the same as a year ago and we saw the same number of foreclosures, the FHA foreclosure rate would be almost 1.5 percent."



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