Foreclosure Recourse

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Mortgage Delinquencies

The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 4.95 percent of all loans outstanding in the fourth quarter of 2006 on a seasonally adjusted (SA) basis, up 28 basis points from the third quarter, and up 25 basis points from one year ago, according to MBA's National Delinquency Survey.

The increase was driven by increases in delinquencies for all major loan types, most notably for subprime and FHA loans. Delinquency rates for prime, subprime, FHA, and VA loans increased on a seasonally adjusted basis relative to the third quarter. The delinquency rate for FHA loans reached a new record in the fourth quarter.

The percentage of loans in the foreclosure process was 1.19 percent of all loans outstanding at the end of the fourth quarter, an increase of 14 basis points from the third quarter of 2006, while the SA rate of loans entering the foreclosure process was 0.54 percent, eight basis points higher than the previous quarter and a record high. Compared with the fourth quarter of 2005, the percentage of loans in the foreclosure process was up 20 basis points while the percentage of loans entering the foreclosure process was up 12 basis points.

This quarter's NDS results cover over 43.5 million loans (33.3 million prime loans, 6 million subprime loans and 4 million government loans).

"Although the U.S. economy and job market remain solid, the housing market continued to decelerate in the fourth quarter of 2006. Nationally, house prices increased at a slower rate and the pace of sales and construction activity continued to slow," said Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development.

"As we had expected, in the fourth quarter, delinquency rates again increased across the board. Increases in delinquency and foreclosure rates were noticeably larger for subprime loans. 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. The significant increases in delinquency rates has in some cases led to unexpected increases in credit losses and the failures of some subprime specialist firms. Credit spreads on lower-rated tranches of subprime securities widened appreciably over the quarter as investors demanded a higher return for exposure to this credit risk. As we have noted before and as recent events have made clear, market discipline in this industry is swift, can be severe, and is more effective at changing lending practices than any potential changes in regulation."

"The market is working, culling over-capacity from the industry, as price signals from the capital markets lead to changes in product mix from originators, and directly and immediately impact the rates that mortgage lenders can offer to borrowers. Far from being a problem, these clear and effective market signals and actions will help the market to more efficiently regain its equilibrium.

"We would continue to caution policymakers to avoid any regulatory or legislative actions that would impede the ability of the market to respond to changes in underlying economic conditions. An important role of public policy should be to facilitate efficient markets, as these will ultimately benefit consumers. For consumers who are having or who expect that they might have difficulties making their mortgage payment, we continue to advise them to contact their lender as early as possible in order to maximize a lender's opportunity to flexibly address each homeowner's individual circumstances. It is in everyone's interest to keep the homeowner in their home paying their bills on time.

"Given our macroeconomic forecast of below trend economic growth and a slowly recovering housing market, we would expect delinquency and foreclosure rates to level off as the housing market regains its footing towards the end of 2007," said Duncan.

Change from last quarter (third quarter of 2006)

The SA delinquency rate increased during the fourth quarter for all loan types. The delinquency rate increased 13 basis points for prime loans (from 2.44 percent to 2.57 percent), 77 basis points for subprime loans (from 12.56 percent to 13.33 percent), 66 basis points for FHA loans (from 12.80 percent to 13.46 percent), and 24 basis points for VA loans (from 6.58 percent to 6.82 percent).

All adjustable rate (ARM) as well as fixed rate (FRM) loans had higher SA delinquency rates compared to the third quarter of 2006. Delinquency rates in the fourth quarter increased 33 basis points for prime ARM loans (from 3.06 percent to 3.39 percent) and increased 122 basis points for subprime ARMs (from 13.22 percent to 14.44 percent). The SA delinquency rate for prime fixed loans increased 17 basis points (from 2.10 to 2.27 percent), while the rate increased 50 basis points for subprime fixed loans (from 9.59 percent to 10.09 percent).

During the fourth quarter of 2006, the foreclosure inventory rate increased for prime loans and subprime loans and decreased for FHA loans and VA loans. The foreclosure inventory rate increased six basis points for prime loans (from 0.44 percent to 0.5 percent) and 67 basis points for subprime loans (from 3.86 percent to 4.53 percent). The foreclosure inventory rate decreased nine basis points for FHA loans (from 2.28 percent to 2.19 percent) and eleven basis points for VA loans (from 1.12 percent to 1.01 percent).

By loan type, the foreclosure start rate increased five basis points for prime loans (from 0.19 percent to 0.24 percent), 18 basis points for subprime loans (from 1.82 percent to 2 percent), 14 basis points for FHA loans (from 0.79 percent to 0.93 percent), and two basis points for VA loans (from 0.32 percent to 0.34 percent).

In the fourth quarter of 2006, the percent of loans that were seriously delinquent, which is defined as the NSA percentage of loans that are 90 days or more delinquent or in the process of foreclosure, was 2.21 percent, 21 basis points higher than for the third quarter of 2006. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process.

Change from last year (fourth quarter of 2005)

Since the fourth quarter of 2005, the SA delinquency rate increased for all loan types. The delinquency rate increased 10 basis points for prime loans, 170 basis points for subprime loans, 28 basis points for FHA loans, and one basis point for VA loans.

Compared with the fourth quarter of 2005, the foreclosure inventory rate increased eight basis points for prime loans and 120 basis points for subprime loans. The rate decreased 15 basis points for FHA loans and 12 basis points for VA loans.

Over the last year, the SA rate of new foreclosures increased 12 basis points overall, increased six basis points for prime loans, 53 basis points for subprime loans, 2 basis points for FHA loans and stayed the same for VA loans.

State and Regional

Across all loan types, the states with the highest overall delinquency rates were Mississippi (10.64 percent), Louisiana (9.10 percent), and Michigan (7.87 percent). Based on foreclosure inventory rates across all loan types, the top three states were Ohio (3.38 percent), Indiana (2.97 percent), and Michigan (2.39 percent). Please see maps 1 and 2 which illustrate the national delinquency and foreclosure inventory rate distribution.

The states with the largest increases in overall delinquency rates from the last quarter were West Virginia (1.00 percentage point), Maine (0.76 percentage points), and Florida (0.69 percentage points).

Based on the foreclosure inventory rate, the states with the largest increases were Nevada (0.25 percentage points), Mississippi (0.24 percentage points), and Massachusetts (0.22 percentage points).

Overall, 49 out of 51 states saw their overall delinquency rate increase, while 44 states saw an increase in the rate of foreclosure inventory.

At the regional level, the Northeast region had an overall SA delinquency rate of 4.58 percent, the North Central region had a delinquency rate of 5.68 percent, the South had a delinquency rate of 5.71 percent, and the West had a delinquency rate of 3.18 percent, compared to the national rate of 4.95 percent. For the unadjusted foreclosure inventory rate, the Northeast region had a rate of 1.16 percent, the North Central region had a rate of 2.02 percent, the South had a rate of 1.08 percent, and the West had a rate of 0.63 percent, compared to the national rate of 1.19 percent.