AUGUST 2004

Mortgage Delinquencies

In its latest quarterly National Delinquency Survey detailing the results from the first quarter of 2004, the Mortgage Bankers Association (MBA) reported a seasonally adjusted overall delinquency rate for one-to four-unit residential mortgage loans of 4.33 percent. The overall delinquency rate was down 52 basis points from the same period in 2003, and was also down 16 basis points from the fourth quarter of 2003.

In addition to a decline in overall mortgage loan delinquencies, the first quarter of 2004 marked a decline in more serious delinquencies for prime loans. As shown in the figure below, the percentage of prime loans 60 days or more past due decreased 5 basis points compared to the fourth quarter of 2003, from 0.69 percent to 0.64 percent. During the first quarter of 2004, the 60 or more days past due delinquency rate for subprime loans increased 9 basis points or 1.9 percent, from 4.67 to 4.76 percent. Despite this quarterly increase, the figure shows that the year-over-year delinquency rate for subprime loans has declined for four consecutive quarters.

The MBA noted that factors contributing to the overall decline in delinquency rates during the first quarter of 2004 included growth in job creation, improvement in household wealth, and a 1.5 percent increase in personal income. As for future mortgage delinquency rates, the MBA raised concern about the burden of rising energy prices on household budgets as well as "...risks associated with a larger ARM share of outstanding loans in a rising [interest] rate environment. ...The ARM share of mortgage originations in the first quarter of 2004 was approximately 30 percent compared with an annual rate of 19 percent in 2003."

In the quarterly update to its Long-Term Mortgage Finance Forecast, the MBA predicted that an annual ARM share of mortgage originations over 30 percent will continue through 2006. The average interest rate for a 30-year fixed rate mortgage at the end of 2004 is predicted to be 6.5 percent, a 40 basis point increase over the 6.1 percent average measured in the first quarter of 2004. The MBA forecast $2.5 trillion in mortgage originations for 2004 and an average of $1.8 trillion each year for the 2005-2007 period. Doug Duncan, MBA's senior vice president and chief economist noted that "[t]his is a housing market which is moving from historic levels to strong levels over the three-year time horizon."

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