Delinquencies Lowest Since '73, But Rise Is Predicted

Despite a slowing economy, mortgage delinquencies fell to a 22-year low of 3.91% of all loans in the first quarter. But economists said they expected delinquencies to rise for the rest of the year.

Delinquencies were down 0.24% from the rate in the fourth quarter of 1994 and 0.22% since the first quarter last year, according to a quarterly survey released Tuesday by the Mortgage Bankers Association.

Delinquencies slackened in all regions of the country, and for government and nongovernment loans alike.

"Income and job growth have been quite strong (in the first quarter), and all those conditions are favorable toward people being able to continue making mortgage payments," said John Godfrey, chief economist at Barnett Banks Inc. in Jacksonville, Fla.

But Mr. Godfrey predicted that a slower economy would catch up with consumers' pocketbooks in the rest of 1995, causing mortgage delinquencies to edge upward.

Mortgage delinquencies have been at historical lows over the past three years, as consumers reduced monthly payments by refinancing out of high rate loans in 1992 and 1993.

They fell to a 21-year low of 3.93% in the third quarter of 1994, and then rose to 4.15% in the fourth quarter. Many economists had predicted that slower economic growth, the aging of the refinanced loans, and fierce competition to make new loans in a shrinking market would exact their toll in higher delinquencies in the first quarter.

The Mortgage Bankers Association attributed the most recent decline to unexpectedly low delinquencies in refinanced loans and the historically low levels of mortgage, auto, and credit card payments that consumers are making.

Refinanced loans, which account for a large portion of servicers' portfolios, "have already been through the aging process before being refinanced and may not experience the delinquency problems usually associated with the aging of new loans," the trade group said.

"Going forward, however, delinquency rates are expected to drift modestly upward due to the aging of the purchase loans in servicing portfolios as well as a slowing of the U.S. economy," the trade group said.

Foreclosures remained unchanged from the fourth-quarter level of 0.86% of all loans.

Of the trade group's three delinquency categories, the biggest decline was in loans that were 30 days past due. Delinquencies fell 0.16% from the previous quarter to 2.60% of all loans in that category.

For loans 60 days past due, delinquencies fell 0.06%, to 0.60% of all loans. In the most serious category of loans that are 90 days or more past due, delinquencies fell 0.02%, to 0.71% of all loans.

Across loan types, FHA loans posted the biggest improvement over the previous quarter. Delinquencies on those loans were down 0.31% to 7.09% of FHA loans. For Veterans Administration loans, delinquencies fell 0.30% to 6.05%.

The delinquency rate for conventional loans fell 0.18% to 2.45%.

Among regions, the South experienced the largest decrease in delinquencies over the previous quarter - 0.26%, to 3.23%. In the North, they fell 0.23% to 3.36%, and in the Northeast, 0.10% to 4.06%.

The large mortgage banks, meanwhile, have been reporting sharply higher delinquencies. For example, Countrywide Credit Industries, the nation's largest servicer, reported 2.38% delinquencies at the end of May, up from 1.91% a year earlier.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER