Mortgage foreclosures ease
Delinquencies could rise on high energy prices
By Rachel Koning, MarketWatch
Last Update: 5:35 PM ET Sept. 15, 2005
CHICAGO (MarketWatch) -- Historically low interest rates and job growth cut the number of mortgage foreclosures and held down a rise in delinquencies in the second quarter, but steep energy costs could increase the number of missed payments and lost homes beginning late this year, the Mortgage Bankers Association said Thursday.
The trade group released the results of its quarterly survey measuring delinquencies and foreclosures at various stages on both prime loans and subprime loans, those given to applicants with lower credit ratings. The group said an interim release before the next quarterly results due in December was planned in order to report on the impact of Hurricane Katrina.
The second-quarter survey showed the percentage of loans in the foreclosure process at 1%, down from 1.18% in the same quarter a year earlier and from 1.08% in the first three months of the year. The figures are seasonally adjusted.
The low for MBA's 30-plus-year survey was 0.27% in the third quarter of 1979. The high was 1.51% in the first three months of 2002.
The seasonally adjusted delinquency rate for mortgages on one-to-four-unit residential properties stood at 4.34% at the end of the second quarter, down from 4.56% in the second quarter of 2004 but up from 4.31% in the first quarter of 2005.
MBA's Chief Economist Doug Duncan said a current foreclosure rate at 1% is impressive, given the inclusion of more subprime loans in the total inventory of U.S. mortgages.
For now, Duncan said to expect an uptick in delinquency rates over the next few quarters in the states impacted by Katrina, especially Louisiana and Mississippi. The area includes an estimated 360,000 loans valued at $48 billion, but exactly how many of those properties might be in trouble wasn't clear.
For the nation, "higher energy costs may exacerbate delinquency rates starting in the fourth quarter," said Duncan.
That projection is based on past experience. A spike in home-heating-fuel prices three years ago did raise the number of delinquencies then.
Both crude oil and gasoline prices hit record highs earlier this month. Prices were already rising but spiked even higher when Katrina hobbled U.S. refinery production for several days. Crude oil prices stood some 70% higher than a year ago. See Futures Movers.
National economic growth could slow late in 2005 as a result of the storm taking a toll on national consumer confidence, lifting energy prices, and cutting income and wealth in the effected region. But growth should ramp up early in 2006 due to rebuilding, predicts Duncan, who thinks the Federal Reserve could skip on Tuesday what had been a widely expected interest-rate hike before Katrina hit.
Duncan predicts the Fed's current 3.5% interest-rate target will stand at 3.75% by year's end and will be lifted to 4.25% by mid-2006.
The risk of increasing delinquencies also grows out of a larger share of adjustable-rate mortgages in a rising-rate environment. The share of ARMs among all mortgages rose to 34% in 2004 from 19% in 2003 and stands currently at about 24%.
Loans are at their greatest risk of delinquency when they're three to five years old. Most ARMs outstanding are less than three years old, meaning the higher-risk period is just beginning. There is also a higher share of subprime loans, which tend to bring higher delinquency rates.
Around 35% of homeowners own their property outright and so carry no mortgage. Some 24% of all outstanding mortgages pay adjustable rates, while 76% are locked in at fixed rates.
Second-quarter results
With the survey's latest results, seasonally adjusted delinquency rates for prime adjustable-rate mortgages, or ARMs, did rise on a quarterly basis, to 2.19% of loans from 2.06%. But the percentage is off last year's 2.26% for the second quarter.
Prime fixed-rate delinquencies eased to 2.02% from 2.11% last year and are unchanged on the quarter.
The delinquency rate for subprime ARMs fell to 10.04% from 10.12% in the same quarter a year earlier and 10.25% in the first three months of the year. Subprime fixed-rate delinquencies fell to 9.06% from 9.78% in the second quarter of 2004 and from 9.10% a quarter earlier.
The foreclosure inventory percentage decreased for all loan types over the year, including Federal Housing Authority loans and Veterans Administration loans, MBA said.
The seriously delinquent rate, loans that are 90 days or more delinquent or in the process of foreclosure, was down from last year and last quarter. In the second quarter of 2005, the percent of loans that were seriously delinquent was 1.83%, down 0.20 percentage point from the second quarter of 2004 and 0.06 lower than the first quarter of 2005.
The survey covers approximately 39.9 million loans (29.7 million prime loans, 5.3 million subprime loans, and 4.9 million government loans).
marketwatch.com
Rachel Koning is a reporter for MarketWatch in Chicago.
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