JANUARY 2005

Mortgage Delinquencies Decline

The Mortgage Bankers Association's (MBA) third quarter 2004 National Delinquency Survey reported an improvement in the seasonally adjusted overall delinquency rate for one-to-four-unit residential mortgage loans. At the end of the third quarter of 2004, 4.41 percent of these loans were past due, compared to 4.65 percent for the same period in 2003 and 4.43 percent for the second quarter. Doug Duncan, the MBA's chief economist and senior vice president commented on the survey results: "[t]he continued modest declines in both delinquencies and foreclosures reflect the strong pace of economic growth and its steady, modest job creation. These improvements override the effects of the increased subprime and ARM [adjustable-rate mortgage] shares and the aging of the young mortgage portfolio. We expect this trend of modestly declining delinquencies and foreclosures to continue."

As for serious delinquencies at the end of Q3 2004, Figure 1 shows a 3 basis point decline and a 5 basis point increase in the percentage of prime and subprime loans 60 days or more past due from the previous quarter, respectively. However, Figure 2 displays a positive trend in both series when considered on a year-over-year basis. At the end of the third quarter 2004, the percentage of prime and subprime mortgage loans 60 or more days past due had declined from their year-ago levels for four and six consecutive quarters, respectively.

In its December Mortgage Finance Forecast, the MBA predicted $2.35 trillion in mortgage originations for 2005, compared with $2.83 trillion for 2004 and $3.81 trillion in 2003. The share represented by ARMs is forecasted to be 37 percent for 2005, not much higher than the 35 percent marked in 2004 but almost twice the 19 percent share in 2003. It will be interesting to see what effect the combination of fewer originations, a steady share of ARMs, and an expected increase in both the 30-year fixed and 1-year Treasury ARM interest rates will have on future delinquencies and foreclosures.

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