A mix of Good and Bad News

In Focus
Second Quarter Mortgage Delinquency and Foreclosures Rates:

A Mix of Good and Bad News
By George Ratiu, Research Economist

There was good news and bad news on the home mortgage delinquency and foreclosure front earlier this month. Data for the second quarter of 2008 from the National Delinquency Survey by the Mortgage Bankers Association shows an increase in delinquency and foreclosure rates. On the positive side, 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. Furthermore, the data also recorded decreases in foreclosure rates for several states.

Delinquencies
The overall delinquency rate increased from 6.35 to 6.41 percent. However, the increase was driven by a jump in prime loan delinquencies - an increase of 22 basis points, up from 3.71 percent to 3.93 percent.

However, seasonally adjusted delinquency rates provided some positive highlights. The delinquency rates for all other loans dropped. Rates for subprime loans decreased 12 basis points (from 18.79 to 18.67 percent). The decline follows a 148 basis point increase reported in the first quarter. Declines were also noted for loans guaranteed through the two major government mortgage programs. Delinquency rates fell 40 basis points for VA loans (from 7.22 percent to 6.82 percent), while the rates for FHA loans declined from 12.72 to 12.63 percent.

Still, on a year-over-year basis, delinquency rates increased across the board. Seasonally adjusted 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 from the second quarter of 2007.