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Economy in Brief

U.S. Mortgage Delinquencies & Foreclosures Remain High
by Tom Moeller August 27, 2010

It's one of the main lessons the study of economics can teach. When something goes bad, less of it is wanted. This year, the percentage of underwritten mortgages in arrears broached 10.0%. Going back to 1972, when the data first became available, that percentage varied close to 4.5%. Then in 2007 the percentage started its rise to the current level. Not surprisingly, the number of underwritten mortgages also peaked in 2007 at 46 million when the phrase "credit crunch' first came in vogue. Details behind the rise in the delinquency rate are in the table below.

First and foremost, it is apparent that the rise in delinquencies spans both the prime and subprime borrowing groups. Since 2007, the increase in the percentage of delinquencies amongst so-called prime mortgages more-than-doubled. This increase really hurt lenders since prime loans account for roughly three-quarters of the loans on the books. During the period, the percentage of delinquent sub-prime mortgage delinquencies rose a lesser ten percentage points to a staggering 27%. It's no wonder that the size of the secondary loan market imploded.

High delinquencies have bred an increased number of foreclosures. Though the number of foreclosures has fallen from the 2009 highs, the annualized foreclosure rate of 4.7% is triple the levels during 2006. The detail is eye-popping. While just 3.8% of prime mortgages are in foreclosure, that figure is up from 0.7% in 2005. The increase has been led by adjustable-rate loans where the recent foreclosure rate of 8.0% compares to 2.9% for fixed-rate loans. Then comes the sub-prime loan universe where 11.9% of loans are in foreclosure, though that is down sharply its peak. For fixed-rate loans the rate is 9.4% but for adjustable-rate sub-prime mortgages the rate is 14.0%.

The mortgage delinquency data is available in Haver's MBAMTG database.

Mortgage Delinquencies (%) Number of
Q2 '10 Q1 '10 2009 2008 2007
All Mortgages Past Due 44,508,533 9.85 10.06 9.47 7.88 5.82
  Prime Conventional 32,932,946 7.10 7.32 6.73 5.06 3.24
    Fixed Rate 27,471,873 5.98 6.17 5.60 3.92 2.56
    Adjustable Rate 4,613,443 13.75 13.52 12.10 9.69 5.51
  Subprime Conventional 4,480,574 27.02 27.21 25.26 21.88 17.31
    Fixed Rate 2.676,386 25.19 25.69 23.83 19.43 13.99
    Adjustable Rate 1,694,395 29.50 29.09 26.69 24.22 20.02
FHA 5,801,588 13.29 13.15 13.57 13.73 13.05
VA 1,293,415 7.79 7.96 7.41 7.52 6.49
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