The value of seriously delinquent home loans held by the nation's banks climbed by $590 million in the first quarter from a year earlier, according to a compilation by Veribanc Inc. The Wakefield, Mass., company calculated the figures from call reports filed with the Federal Reserve Board by 10,433 banks.
While the dollar volume of delinquencies climbed 9.6%, the rate hardly budged. Payments late by 90 days or more inched up from 0.91% to 0.92%, and delinquencies on home equity loans - included in the overall rate - stayed level at 0.57%.
In the third quarter of 1994, serious delinquencies stood at 1.19%, and a year earlier the number was 1.42%. Credit card delinquencies, however, stood at 1.70% in this year's first quarter, about the same as the 1.73% level in 1993.
Veribanc said the numbers suggested "most families enjoy better repayment capabilities than they had as recently as two years ago."
The Office of Federal Housing Enterprise Oversight is expecting a more- active market for subprime and jumbo mortgages as a result of the increased use of credit scoring in the mortgage industry.
"Competition should increase in efforts to identify mortgages that would be graded subprime under traditional underwriting criteria but that pose a relatively low level of credit risk when scrutinized by scoring systems. Competition for low-risk jumbo loans also is likely to increase," the regulator said in its annual report.
This competition should lead to greater standardization in the subprime market and to lower and more uniform interest rates on both subprime and jumbo loans, the report concluded.
The office, which monitors the financial soundness of the Federal National Mortgage Association and Federal Home Loan Mortgage Corp., also said the credit-scoring trend could be good for Fannie Mae and Freddie Mac and bad for depository institutions.
"If Freddie Mac and Fannie Mae purchased and securitized a significant proportion of mortgages traditionally graded subprime, the volume of whole loans held by depository institutions, and their average credit quality, might decline as the enterprises bore more of the credit risk on the highest quality loans," the report said.
Say a loan officer brings in an application that doesn't quite meet the standards for a conventional loan. The lender grants the mortgage anyway, but handles it as a subprime loan. Does the loan officer get a commission?
The answer was clearly yes just a few weeks ago. But now that the Department of Housing and Urban Development has drafted the final rules for implementing the Real Estate Settlement Procedures Act, the answer has gotten rather muddy.
If the subprime loan is made directly by the loan officer's employer, then the commission can still be paid. But many lenders have established separate subprime units in the last year or so. And the subprime unit may not be able to compensate the loan officer for the referral under the new rule.
Larry Platt, a partner with Kirkpatrick & Lockhart, Washington and a specialist in Respa, said, "The rule has a silly outcome." He said loan officers might not be eligible for compensation simply because their company has changed its corporate structure.
To continue to compensate the loan officer, the company would have to build a case that the payment is for services rendered and not just the referral, Mr. Platt said.
