WASHINGTON – The Mortgage Bankers Association of America launched the new year with some good news for lenders, including credit unions. The MBA's latest National Delinquency Survey, covering the third quarter of 2002, found the number of homeowners delinquent with their mortgage payments dropped and the number in foreclosure remained flat compared to the previous quarter. "We believe delinquencies have peaked and, as the economy continues its recovery, the housing market will continue to make its contribution," said Doug Duncan, MBA senior vice president and chief economist. "We believe going forward there will be fewer households facing the harsh economic reality of unemployment that helped to drive up delinquencies and foreclosures in the first two quarters of 2002. Certainly that could change with any unforeseen circumstances, but all indicators are pointing toward a growing economy and ultimately an improving job market," he continued. The seasonally adjusted delinquency rate for mortgage loans on one-to-four unit residential properties was 4.66% at the end of the third quarter of 2002. This represented a drop of 11 basis points from the second quarter and a drop of 17 basis points from the third quarter of 2001. The percentage of prime-rate loans in the process of foreclosure remained the same at .51% from the second quarter to the third quarter, although it rose 6 basis points from the same quarter a year earlier. Duncan noted foreclosures tend to lag behind delinquencies, and he expects to see the number of foreclosures slacken in future reports. Even now, "Delinquencies and foreclosures are at very respectable levels," he said. One factor is the economy has added jobs, a number of them second jobs. More two-paycheck families means more people have the ability to keep their mortgages current, even if one member of the household loses their job. "Those people who are going to get in trouble because of unemployment have already gotten in trouble," Duncan said. He indicated the decline in delinquencies has been driven largely by a decrease in mortgages 30 days past due. That, he added, is very consistent with the recovery pattern from other recessions. As the sub-prime market has grown, the MBA has been working to get more accurate information on what's happening to sub-prime loans. Sub-prime loans increased from 1.8 percent to 3.6% as a percent of all loans in the survey over the last five years. For prime conventional loans, the total delinquency rate fell from 2.64 percent in the second quarter to 2.54 percent in the third quarter. The prime conventional delinquency rate fell 32 basis points from a year earlier. Data on sub-prime loans showed 14.28 percent were past due in the third quarter compared to 15.67% for the second quarter and 14.27% a year earlier. The MBA emphasized the sub-prime data is limited and doesnt reflect the entire market. "The sub-prime breakout, while a very important look at the marketplace, is a snapshot, as it represents less than half the sub-prime market and includes some specialized firms. We will, over the next few quarters, add more sub-prime reporting companies to provide our members with a more complete view of delinquencies and foreclosures in the sub-prime market," Duncan said. He indicated he believes an expanded look at the sub-prime market will reveal much lower delinquency and foreclosure rates than suggested in the current, more limited, data. In fact, he sees evidence many sub-prime borrowers are "graduating" out of the sub-prime market into conventional loans. How should credit unions respond to the latest report? See if the trend lines at your credit union follow these national trends, Duncan advised. Look at economic developments in your specific market area. Adjust your plans according to the specifics of your city or region. One factor to consider is the general escalation of housing prices in most areas. That increase in home values has allowed families pinched by mortgage payments to sell their homes, enjoy a profit and purchase a house that more readily fits their budget. On another positive note, while some specific markets may see a decline in home values, Duncan doesn't believe there is a nationwide price bubble ready to burst. -

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