Delinquency Rates Keep Falling.

The Mortgage Bankers Association reported declining delinquencies in the first-quarter and projected that delinquencies will continue to fall over the next few years, but not as much as they would have a decade ago due to the increase in the subprime sector of the overall market.

"The seasonally adjusted delinquency rate for mortgage loans in one- to four-unit residential properties was 4.33% in the first quarter of 2004, down 16 basis points from 4.49% in the fourth quarter of 2003," said Doug Duncan, senior vice president and chief economist at the MBA. "On a year-over-year basis, it represents a 52-basis-point decline from 4.85%. In terms of foreclosure inventory, they stand at 1.27%, down two basis points from the previous quarter at 1.29% and 16 basis points lower when compared to one year ago when it was at 1.43%."

The second main point addressed was that there was a decline in short-term delinquencies, which the MBA characterized as loans past due 30 to 59 days. Mr. Duncan believed that this factor contributed to the overall delinquency decrease.

"In the first quarter the seasonally adjusted percentage of loans past due 30 to 59 days fell 13 basis points from 2.89% to 2.76%, while the percentage of loans 60 to 89 days past due decreased three basis points from 0.77% to 0.74%," he said. "Loans 90 days or more past due stayed constant at 0.83%."

The FHA delinquency rate remains higher when compared to the subprime delinquency rate for the second consecutive quarter, according to Mr. Duncan. "The seasonally adjusted delinquency rate for FHA loans at the end of the first quarter was 11.68% compared with the subprime delinquency rate of 11.19%," he noted. "It's not the case that either new foreclosures or foreclosure inventory is as great for FHA as subprime however. FHA new foreclosures stand at 0.93% as compared to 1.99% for subprime. Foreclosure inventory for FHA stands at 2.78% as compared to 5.05% for subprime."

In terms of the context of the housing market going forward, Mr. Duncan was optimistic as the Fed did not change the rate for the entire first quarter. "This rate is important in that it indicates what the Fed is thinking about the current and future economic growth potential," he said. "It sets the economic background.

"Critical to delinquencies and foreclosures, the single most important determinant of delinquency levels and rate changes is employment," he continued. "Payroll job growth totaled 595,000 in the first quarter, a significant increase in employment, which is directly related to the decline in near-term delinquencies. More recently U.S. companies have added 346,000 new jobs in April and the preliminary estimate is 248,000 new jobs in May, which will be a good indicator of where we expect delinquency rates to go in the future."