Delinquency rates for FHA mortgages dropped by more than 40 basis points to the third-lowest total in two years during the third quarter of 1994, according to a national delinquency survey of mortgage loans by the Mortgage Bankers Association.

The MBA reports that the percentage of all FHA loans past due improved to 6.97% in the third quarter, down 42 basis points from a three-year high of 7.39% set during the second quarter. The 6.97% delinquency rate was the lowest since the first quarter of 1993, and the third-lowest for Federal Housing Administration-insured loans since the fourth quarter of 1992, when 6.91% were past due.

The rate of foreclosures started for FHA mortgages moved up slightly to 0.62% from 0.56%. Loans in the mid-Atlantic states of New Jersey (3.85% in foreclosure), New York (3.64%) and Pennsylvania (2.91%) contributed to an overall 3.45% foreclosure rate for the region, the highest in the nation.

Despite the drop in delinquency rates, FHA loans still lagged nearly 100 basis points behind VA loans, and more than 450 basis points behind conventional loans, both of which recorded their lowest delinquency rates in three years. Overall, delinquency rates for all categories combined was 3.90%, the lowest in 21 years said new MBA President Joe Pickett.

Pickett, who is also CEO of BancBoston Mortgage Corp., said that because of the market developments such as the increased market share of adjustable-rate loans, rising loan-to-value ratios and higher interest rates, delinquency and foreclosure rates are expected to climb again in 1995.

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