The Mortgage Bankers Association reported delinquency and foreclosure rates today for Q1, and while the credit quality situation continues to deteriorate in most segments of this debt market, the move was noticeably less severe than last quarter. In fact, total loans past due actually decreased slightly, from 4.95% of mortgages serviced to 4.84%. Conventional prime mortgage delinquencies barely moved, to 2.58% from 2.57%. Subprime loans rose to 13.77% from 13.33%, an increase of 0.44%, much less than the increases of 0.86% and 0.77% in Q3 and Q4 2006, respectively. Outright improvement in delinquency rates came in FHA loans, down 1.31%, and VA loans, 0.33%. Foreclosures were started on 0.58% of all loans, 0.04% more than during the previous quarter, and at the end of March, 1.28% of mortgages were in foreclosure, up from 1.19% at year-end and 0.99% at the end of 2005. These rates are calculated on a total base of 43.9 million mortgage loans serviced by Mortgage Banker members during Q1.

The subprime category has received considerable press attention, and it generally lived down to expectations. Many borrowers took out their loans when interest rates were much lower and now face sizable increases in monthly payments as rates have risen. The weekly survey from Freddie Mac shows that after several weeks' pause in rate rises they have turned up once again, hinting that Q2 and Q3 delinquencies may suffer renewed deterioration.

Last quarter, when we introduced these Mortgage Banker data, we noted that they are available for all the states as well as the country as a whole and various regions and we commented that "credit quality varies considerably around the nation". In today's report, Doug Duncan, Chief Economist of the MBA, highlights that four states in particular, California, Florida, Arizona and Nevada have particularly large increases in rates of foreclosures initiated. In sharp contrast, 26 states saw the rate of foreclosures on subprime ARM loans decrease this quarter.

Of loans in foreclosure, sometimes known as "foreclosure inventory", Ohio, Michigan and Indiana have by far the highest rates. These heavy-industry states have seen manufacturing jobs move out, pressuring people's ability to repay loans. In Indiana, this is seen in the last graph to be a problem of long-standing, with mortgages in foreclosure at 3% of all mortgage loans in the state since 2002, even though employment there has started to improve. Ohio, Duncan says, has the largest foreclosure inventory ever suffered in a "large" state.

All these data are contained in Haver's MBAMTG database. Weekly data on the Freddie Mac mortgage survey are available in WEEKLY and SURVEYW and monthly averages are in USECON.