March 13, 2007 -- No matter the type of loan, more homeowners had difficulty making their loan payments and became delinquent in the last three months of last year.
According to the Mortgage Bankers Association's National Delinquency Survey released on Tuesday, 4.95 percent of mortgage loans were delinquent in the last quarter of 2006. That's an increase from 4.67 percent of loans delinquent from July through September. And compared to a year ago, the delinquency rates increased as well. Then, 4.7 percent of home loan payments nationwide were late.
In particular, subprime borrowers continued to have difficulties making their loan payments. Over 13.3 percent of subprime loans were delinquent, compared to 11.6 percent a year earlier.
Subprime loans are offered to people with risky or bad credit and often have higher than normal interest rates on the loans. In the last several months, several lending institutions that specialize in these loans -- companies such as New Century, NovaStar and First Franklin Financial -- announced that higher default and delinquency rates on these loans will impact their ability to make a profit.
For subprime borrowers, it did not matter if they received a fixed rate or an adjustable rate home loan. Both categories saw the number of late payments increase. In particular, though, subprime borrowers with adjustable rate mortgages, commonly referred to as "ARMs," saw their delinquency rate shoot up nearly 3 percent from last year. Now, more than 14 percent of subprime ARM loans are late.
"Subprime borrowers are more likely to be susceptible to the cumulative increases in interest rates that we have experienced and the resultant nationwide slowing of home price appreciation including outright declines in some markets," said Doug Duncan, the chief economist for the Mortgage Bankers Association in press release.
But while delinquencies have steadily risen in the past several months, the rates are still below the levels seen in the spring and summer of 2002 when nearly 15 percent of all subprime lenders were delinquent.
Despite the recent problems for many borrowers, the mortgage bankers worry that overreactions, especially by federal regulators, could have a negative effect on potential home buyers looking for loans.
"An overreaction could curtail the options for consumers and aggravate the slowdown that has been under way in both housing and real estate finance," said Duncan.
As homeowners couldn't keep up with their monthly payments, many saw their homes enter into some state of foreclosure. According to the D.C.-based trade association, 0.54 percent of home loans entered some stage of foreclosure between October and December of last year.
This rate of homes going to foreclosure is a record in the history of the survey. The previous high occurred in the second quarter of 2002 when 0.5 percent of home loans entered into the foreclosure process.
Overall, the total number of homes in foreclosure increased in the fourth quarter of 2006 to a rate of 1.19 percent. That compares to 0.99 percent for the same period in 2005.
As with delinquent loans, subprime borrowers were more likely to lose their homes to foreclosure than other borrowers. The foreclosure rate increased more than one percentage, from 3.3 percent to 4.5 percent in the last quarter of 2006.
Katrina Woes Linger
An examination of all loan types found that Mississippi had the highest delinquency rates. More than 10 percent of the home loans in the Magnolia State were delinquent. Louisiana was next with more than 9 percent. Homeowners in both states continue to recover after the severe losses during the 2005 hurricane season.
The third highest state with home loan defaults was Michigan at 7.9 percent. That state's economy has suffered as the U.S. auto industry has reduced its work force by several thousand and closed factories. With industry and jobs disappearing, many home owners have become late in making their home mortgage payments.
The Mortgage Bankers Association National Delinquency Survey covers 43.5 million loans. Of those loans, 33.3 million loans are prime loans, 6 million are subprime and the remaining 4 million are government loans such as VA loans.