Rising Delinquency Headed Higher

Delinquency of at least 30 days was 1.23 percent on prime mortgages as of June 30, rising from 1.15 percent on May 31 and 0.89 percent a year earlier, FBR Investment Management Inc. wrote in its Aug. 24 edition of Structured Finance Insights. Prime loans delinquent at least 90 days at June’s end came in at 0.38 percent — just one basis point higher than the prior month. The 90-day rate is expected to hit 0.53 percent by next year.

FBR said 30+ day delinquency on Alternative-A mortgages was 7.25 percent, climbing from 6.62 percent the prior month and 3.31 percent a year earlier. Serious delinquency on Alt-A loans represented 3.00 percent of outstanding loans — the highest level ever. FBR forecasts 3.92 percent serious Alt-A delinquency by 2008.

On subprime pools, 26.64 percent of mortgages were delinquent at second quarter’s end, increasing from 24.47 percent in May and 16.40 percent a year earlier. FBR reported serious subprime delinquency at 13.44 percent on June 30, a record — though it is projected to reach 14.54 percent next year.

While prime loan performance has deteriorated for 10 of the past 11 months, FBR noted Alt-A and subprime performance has worsened for 25 consecutive months.

“The default rates of Alt-A and subprime loans deteriorated sharply in June from May, after six months of gradual erosion,” FBR said. “We cannot preclude more outsized monthly gains in the default rates of Alt-A and subprime loans, which reflect administrative decisions by servicers and their agents as well as financial pressures on borrowers, but we do expect more moderate gains en route to default rates of 3.92% and 14.54%, respectively, by May 2008.”

Even though prime performance worsened in 111 metropolitan statistical areas, Alt-A performance declined in 286 MSAs and subprime performance was worse in 304 MSAs, the data indicated. Default rates from 45 MSA’s in Arizona, California, Florida, Nevada, Washington, D.C., Idaho and Oregon increased by at least 200 percent from a year earlier — though only six of these MSAs are among areas with the highest default rates.

The MSAs with the highest default rates were mostly concentrated in the Midwest, which FBR attributed to “the chronically weak local economic conditions of the Rust Belt.”

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com