Housing Bubble

Mortgage delinquencies fall, foreclosures rise slightly in Q1

June 20, 2003

Washington, D.C. - The first-quarter 2003 National Delinquency Survey (NDS), released today by the Mortgage Bankers Association of America (MBA), shows that the share of homeowners who were delinquent with their mortgage payments decreased from the previous quarter, while the percentage of loans in foreclosure increased slightly.

The seasonally adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties was 4.52 percent at the end of first quarter 2003. This represents a decrease of 1 basis point from the fourth quarter of 2002, and a drop of 13 basis points from the first quarter of 2002.

While the overall delinquency rate registered a minor decrease, the delinquency rates for each loan type increased. The seasonally adjusted delinquency rate for conventional loans increased 2 basis points to 3.10 percent; the seasonally adjusted delinquency rate for FHA loans increased 20 basis points to 11.65 percent; and the seasonally adjusted delinquency rate for VA loans increased 7 basis points to 7.89 percent. The decline in the overall delinquency rate is primarily due to a decline in the number of FHA loans in the sample relative to conventional loans.

Seasonally adjusted conventional prime loans registered a delinquency rate of 2.62 percent in the first quarter of 2003. This is down 3 basis points from 2.65 percent in the fourth quarter of 2002, and down 7 basis points from 2.69 percent in the first quarter of 2002. Seasonally adjusted conventional subprime loans had a delinquency rate of 12.40 percent, representing a drop of 89 basis points from the fourth quarter of 2002 and 161 basis points from the first quarter of 2002. During the first quarter of 2003, the "90 days or more" delinquency rate went from 3.31 percent to 3.38 percent for conventional subprime loans, as the rate declined from 0.30 percent to 0.29 percent for conventional prime loans.

MBA's delinquency rate does not include loans that are in the process of foreclosure.

The percentage of all loans in the process of foreclosure at the end of the first quarter of 2003 increased by 2 basis points to 1.20 percent from 1.18 percent in the fourth quarter of 2002. The percentage of loans in the process of foreclosure rose for all loan types during the first quarter: from 0.86 percent to 0.89 percent for conventional loans, from 1.58 percent to 1.63 percent for VA loans, and from 2.78 percent to 2.90 percent for FHA loans.

The percentage of conventional prime loans in the process of foreclosure increased 2 basis points to 0.56 percent from the fourth quarter of 2002, whereas the percentage of subprime conventional loans in the process of foreclosure decreased 80 basis points to 7.17 percent from the fourth quarter of 2002. Given the much smaller sample of subprime loans (nearly 1.4 million loans), quarterly percentage fluctuations should be viewed with caution as they can be significantly influenced by changes in sample composition.

Seasonally adjusted loans for which foreclosures were started during the first quarter of 2003 increased for all loans and each loan type. The rate of all loans entering the process of foreclosure in the first quarter of 2003 increased 2 basis points to 0.37 percent, the rate for conventional loans increased 2 basis points to 0.27 percent, the rate for FHA loans increased 1 basis point to 0.87 percent and the rate for VA loans increased 5 basis points to 0.48 percent.

"Economic growth remained sluggish in the first quarter of 2003, as the number of jobs declined and personal bankruptcies continued to climb. Nevertheless, the overall delinquency rate declined slightly by the end of the quarter, continuing the downward trend in overall delinquencies," said Doug Duncan, MBA's senior vice president and chief economist. "In the second half of the year, improving economic growth and increases in employment are expected as the benefits of the tax cuts in the President's economic stimulus package, along with the ongoing economic benefits of a strong refinance market, are realized. An improved economy and job market should result in gradually declining delinquency rates."

Source: Mortgage Bankers Association of America