WASHINGTON - Mortgage delinquencies rose to 4.24% of all loans in the third quarter, confirming that the second-quarter increase was more than a blip. Economists now expect delinquencies to keep climbing at least through 1996.
The increase itself was small, just 0.09% above the level in the preceding quarter, according to a survey released Thursday by the Mortgage Bankers Association. But the slower payments were consistent across most of the country. Only the Northeast bucked the trend, with a slight decline.
In the past few years delinquencies have fallen steadily, reaching a 22- year low with momentum from refinancings into low-rate mortgages during the refinancing boom.
The reversal of that trend "is consistent with the deteriorating trend in consumer credit across the board including mortgages, consumer loans, and credit cards," said Sung Won Sohn, chief economist at Norwest Corp.
"The bottom line is that consumers are too far stretched in debt, and that is especially true for low- and moderate-income Americans, who have done most of the borrowing," Mr. Sohn said.
"Delinquency rates, while still low by historical standards, may have reached their cyclical bottom, and this could be the beginning of an upward trend," said Paul Reid, president of the Mortgage Bankers Association.
Most of the deterioration in the third quarter was in the 30-day past due category, which rose 0.11% from the previous quarter to 2.86% of all loans. Loans that were 60-days past due rose 0.01% to 0.64% of all loans. The most serious delinquency category, of loans 90-days or more past due, fell by 0.03% to 0.74% of all loans.
Delinquencies for conventional loans rose to 2.88% of all loans, up 0.20% from the previous quarter. Delinquencies on government-insured FHA loans rose 0.09% to 7.45% of all loans. For Veterans Administration loans, the delinquency rate fell 0.04% to 6.34% of all loans.
Jonathan Gray, an analyst at Sanford C. Bernstein & Co., New York, laid the blame for rising delinquencies squarely on the surge in low-down- payment lending.
"For the past two years, loan originations where the borrower puts down only 5 to 10% as opposed to the more normal 20% down payment have been running at historically high levels," Mr. Gray said.
Such loans accounted for almost half of total originations in 1994 and the first half of this year, compared with a historical average of about 30%, he said.
He calculates that such loans default three times more frequently than loans with 20% down. The result: delinquencies will rise steadily next year and then substantially in 1997 and 1998, even if the economy is strong, Mr. Gray said.
"The mix of originations has shifted to much more leveraged transactions, and you are virtually assured of rising delinquencies and defaults over the next two to three years," he said.
Economist Mark Zandi of Regional Financial Associates agreed that low- down-payment loans made in the past couple of years would push up mortgage delinquencies throughout 1996, no matter what happens with the economy.
But he said he remained relatively optimistic for two reasons. The latest round of refinancings and improvements in house prices will work to hold down mortgage delinquencies, he said.