The delinquency rate does not include loans in the process of foreclosure.  The percentage of loans in the foreclosure process was 2.04 percent of all loans outstanding at the end of the fourth quarter, an increase of 35 basis points from the third quarter of 2007 and 85 basis points from one year ago.

The rate of loans entering the foreclosure process was 0.83 percent on a seasonally adjusted basis, five basis points higher than the previous quarter and up 29 basis points from one year ago.

The total delinquency rate is the highest in the MBA survey since 1985.  The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever.

The increase in foreclosure starts was due to increases for both prime and subprime loans.  From the previous quarter, prime fixed rate loan foreclosure starts remained unchanged at 0.22 percent, but prime ARM foreclosure starts increased four basis points to 1.06 percent. Subprime fixed foreclosure starts increased 14 basis points to 1.52 percent and subprime ARM foreclosure starts increased 57 basis points to 5.29 percent. FHA foreclosure starts decreased 4 basis points to 0.91 percent and VA foreclosure starts remained unchanged at 0.39.

Since the fourth quarter of 2006, the foreclosure start rate for prime ARMs increased from 0.41 percent to 1.06 percent and the rate for subprime ARMs increased from 2.70 percent to 5.29 percent. The foreclosure start rate for prime fixed loans increased from 0.16 percent to 0.22 percent and the rate for subprime fixed loans increased from 1.09 percent to 1.52 percent.

As can be seen in the chart below, while subprime ARMs represent 7 percent of the loans outstanding, they represent 42 percent of the foreclosures started during the fourth quarter. Prime ARMs represent 15 percent of the loans outstanding, but 20 percent of the foreclosures started. 

While Michigan, Ohio and Indiana continue to have the highest percentages of loans in foreclosure, and are among the states with the highest rates of new foreclosures, those states experienced comparatively little increase over the last year or last quarter in their rates of new foreclosures started.

"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development.  "In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face. In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through.

"Of significance, however, is that the rate reset issue on adjustable rate mortgages is becoming less of an issue.  The 6-month LIBOR rate, the index rate used for many subprime ARMs, has come down around 2.5 percentage points since last September, greatly reducing the payment shock on many ARM resets."

Change from last quarter (third quarter of 2007)

The SA delinquency rate increased 12 basis points for prime loans (from 3.12 percent to 3.24 percent), 100 basis points for subprime loans (from 16.31 percent to 17.31 percent), 13 basis points for FHA loans (from 12.92 percent to 13.05 percent), but decreased nine basis points for VA loans (from 6.58 percent to 6.49 percent).

The foreclosure inventory rate increased 17 basis points for prime loans (from 0.79 percent to 0.96 percent), and increased 176 basis points for subprime loans (from 6.89 percent to 8.65 percent). FHA loans saw a 12 basis point increase in foreclosure inventory rate (from 2.22 percent to 2.34 percent), while the foreclosure inventory rate for VA loans increased nine basis points (from 1.03 percent to 1.12 percent).

The SA foreclosure starts rate increased four basis points for prime loans (from 0.37 percent to 0.41 percent), 32 basis points for subprime loans (from 3.12 percent to 3.44 percent). The foreclosure starts rate decreased four basis points for FHA loans (from 0.95 percent to 0.91 percent) and was unchanged for VA loans (0.39 percent).

The seriously delinquent rate, the non-seasonally adjusted (NSA) percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process.

During the fourth quarter, the seriously delinquent rate increased for all loan types. The rate increased 36 basis points for prime loans (from 1.31 percent to 1.67 percent), 306 basis points for subprime loans (from 11.38 to 14.44 percent), 46 basis points for FHA loans (from 5.54 percent to 6 percent) and 27 basis points for VA loans (from 2.56 to 2.83 percent).

Change from last year (fourth quarter of 2006)

On a year-over-year basis, the SA delinquency rate increased for prime and subprime loans, and decreased for FHA and VA loans. The delinquency rate increased 67 basis points for prime loans, increased 398 basis points for subprime loans, decreased 41 basis points for FHA loans, and decreased 33 basis points for VA loans.

Compared with the fourth quarter of 2006, the foreclosure inventory rate increased 46 basis points for prime loans and 412 basis points for subprime loans. The foreclosure inventory rate also increased 15 basis points for FHA loans and 11 basis points for VA loans.

The SA foreclosure starts rate increased 29 basis points overall, 17 basis points for prime loans, 144 basis points for subprime loans, and five basis points for VA loans. For FHA loans, the foreclosure starts rate decreased two basis points from the fourth quarter of 2006.

The seriously delinquent rate was 81 basis points higher for prime loans and 666 basis points higher for subprime loans. The rate also increased 22 basis points for FHA loans and 18 basis points for VA loans.

If you are a member of the media and would like a copy of the survey, please contact Carolyn Kemp at (202) 557-2727 or ckemp@mortgagebankers.org. If you are not a member of the media and would like to purchase the survey, please call (800) 348-8653.

© 2008 Mortgage Bankers Association (MBA).  All rights reserved, except as explicitly granted.

Data are from a proprietary paid subscription service of MBA and are provided to the media as a courtesy, solely for use as background reference. No part of the data may be reproduced, stored in a retrieval system, transmitted or redistributed in any form or by any means, including electronic, mechanical, photocopying, recording or otherwise.  Permission is granted to news media to reproduce limited data in text articles. Data may not be reproduced in tabular or graphical form without MBA's prior written consent.

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The above data were obtained in cooperation with the Mortgage Bankers Association (MBA), which produces the National Delinquency Survey (NDS). The NDS, which has been conducted since 1953, covers 46 million loans on one- to four- unit residential properties, representing over 80 percent of all "first-lien" residential mortgage loans outstanding in the United States. Loans surveyed were reported by approximately 120 lenders, including mortgage bankers, commercial banks, and thrifts.

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.