CHICAGO – The strength of the economy and the job market helped residential delinquency and foreclosure rates decrease during the first quarter of 2006, according to the Mortgage Bankers Association’s quarterly survey, released Monday.
The seasonally adjusted delinquency rate for mortgage loans on one- to four-unit residential properties dropped to 4.41 percent in the quarter, down from 4.7 percent in the fourth quarter of 2005, according to the survey.
But remove the impact of Hurricane Katrina, and the delinquency rate would have been 4.31 percent – level with last year, the association said. The destruction and dislocation caused by the storm is still having a significant impact on delinquency rates in Louisiana and Mississippi.
“The economy grew at a brisk 5.3 percent pace in the first quarter of 2006, and labor markets were quite strong as well, with an average of 176,000 jobs added per month. Within this context, the housing market was normalizing with a declining pace of new- and existing-home sales, and slowing rates of home-price appreciation,” Doug Duncan, MBA’s chief economist and senior vice president of research and business development, said in a statement.
The aging of the loan portfolio, increasing short-term interest rates and high energy prices were cited as issues in prior quarters; this quarter’s positive economic factors offset those.
“Going forward, we expect these same factors will continue to be important, including the fact that the Federal Reserve might need to raise rates further to keep inflationary pressures contained. In any event, additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead,” Duncan added.
During a conference call with reporters, the economist said that the biggest risk to loan-delinquency rates is the loss of employment.
The survey also said that the percentage of new foreclosures (loans that entered the foreclosure process during the quarter) was 0.41 percent, down from 0.42 percent in the fourth quarter. It also was 0.42 percent in the first quarter of 2005.
The foreclosure-inventory percentage (the percentage of loans in the foreclosure process at the end of the quarter) was 0.98 percent, down from 0.99 percent in the fourth quarter. It was 1.08 percent in the first quarter of 2005.
The survey found that all adjustable-rate and fixed-rate loans had lower seasonally adjusted delinquency rates compared with last quarter, except for subprime ARMs. The delinquency rate for prime ARMs decreased from 2.54 percent to 2.30 percent over the quarter; the rate for prime fixed-rate loans decreased from 2.21 percent to 2 percent; and the rate for subprime fixed-rate mortgages decreased from 9.7 percent to 9.61 percent. Subprime ARMs increased from the rate of 11.61 percent to 12.02 percent.
The results cover more than 41.3 million loans. Of those, 31.4 million were prime loans, 5.6 million were subprime loans and 4.3 million were government loans.
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AP-NY-06-19-06 1727EDT
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