Economist's Commentary: September 5, 2008

Delinquencies Drop; Foreclosures Rise

By George Ratiu, Research Economist

Data for the second quarter of 2008 from the National Delinquency Survey released today by the Mortgage Bankers Association provides an increase in delinquency and foreclosure rates. However, the figures also point to some marked improvements-delinquency rates for subprime, FHA and VA loans dropped from last quarter. Foreclosure inventory rates for FHA loans also declined on a quarterly basis.

DELINQUENCIES

Seasonally-adjusted (SA) delinquency rates provided some positive highlights. The overall delinquency rate increased from 6.35 to 6.41 percent. However, the increase was driven by a jump in prime loan delinquency-22 basis points, from 3.71 to 3.93 percent.

The delinquency rates for all other loans dropped. Rates for subprime loans decreased 12 basis points (from 18.79 to 18.67 percent), following a 148 basis point increase in the previous quarter. Delinquency rates fell 40 basis points for VA loans (from 7.22 to 6.82 percent), while the rates for FHA loans declined from 12.72 to 12.63 percent.

On a year-over-year basis, delinquency rates increased across the board. The SA delinquency rates moved up 120 basis points for prime loans, 385 basis points for subprime loans, five basis points for FHA loans, and 67 basis points for VA loans.

FORECLOSURES

Nationally, the rate of foreclosures started was up 20 basis points compared with the first quarter of 2008. Compared with the first quarter of 2008, the foreclosure starts rate increased from 0.54 percent to 0.67 percent for prime loans, from 4.06 percent to 4.70 percent for subprime loans, and from 0.50 percent to 0.65 percent for VA loans. FHA loans also posted an increase in the foreclosure starts rate of 16 basis points (from 0.87 percent to 1.03 percent), following last quarter's decline.

The foreclosure inventory rate also increased nationally for all loans, from 2.47 percent in the first quarter of 2008 to 2.75 percent in the second quarter of 2008. On a year-over-year basis, the foreclosure inventory rate increased 135 basis points (from 1.40 percent in the first quarter of 2008). Based on a loan type, the foreclosure inventory rate increased for all loans except FHA-20 basis points for prime loans, 107 basis points for subprime loans, and nine basis points for VA loans. Foreclosure inventory rates for FHA loans saw a 16 basis point drop.

On a regional basis, foreclosure inventory rates follow previous quarters' trends, with Nevada, Florida, California, and Arizona posting continued increases-4.92 percent, 6.00 percent, 3.86 percent and 3.26 percent respectively. The other states with noticeable increases in foreclosure rates are Ohio, Michigan and Indiana, with increases of 3.97 percent, 3.60 percent, and 3.59 percent, respectively.

By comparison, states with stable economies and moderate price growth over the past ten years are posting considerably smaller foreclosure rates-0.59 percent for Wyoming, 0.80 percent for North Dakota, 0.86 percent for Alaska, and 0.93 percent for Montana.

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