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Katrina Worsens an Expected Rise in Delinquencies
American Banker Thursday, March 16, 2006
By Matthew Quinn <mailto:MatthewQuinn@SourceMedia.com>

Hurricane Katrina worsened an expected fourth-quarter rise in mortgage delinquencies, the Mortgage Bankers Association said Thursday.
The seasonally adjusted delinquency rate for one-to-four-unit residential mortgages rose for the third consecutive quarter, the trade group said. The rate rose 26 basis points from the third quarter and 32 basis points from a year earlier, to 4.7%.

The effects of Katrina contributed 15 basis points to the year-over-year rise, the MBA said.

Doug Duncan, its chief economist, said in a conference call Thursday that Katrina hurt all loan types.

Even without the effects of the storm, the increase in delinquencies was not surprising, he said.

“We have been expecting an uptick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are adjustable-rate mortgages and subprime mortgages, as well as the elevated level of energy prices affecting households and rising interest rates,” he said.

The percentage of loans in the foreclosure process fell 16 basis points from a year earlier but rose 2 basis points from a quarter earlier, to 0.99% at yearend.

Subprime loans were hit hardest. The delinquency rate for all subprime loans surged 130 basis points from a year earlier and 87 basis points from the third quarter, to 11.63%. However, the effects of Katrina raised the fourth-quarter rate by 117 basis points, the MBA said.

Prime loans also continued to struggle; their delinquency rate rose for the third consecutive quarter. It rose 25 basis points from a year earlier and 13 basis points from the third quarter, to 2.47%.

The fourth-quarter delinquency rate for subprime fixed-rate loans fell 2 basis points from a year earlier but rose 91 basis points from the third quarter, to 9.7%. The rate for subprime adjustable-rate mortgages surged 178 basis points from a year earlier and 106 basis points from the third quarter, to 11.61%.

The performance of both prime fixed-rate and adjustable-rate loans worsened. The delinquency rate for prime fixed-rate loans rose 17 basis points from a year earlier and 10 basis points from the third quarter, to 2.21%. The rate for prime ARMs rose 43 basis points from a year earlier and 24 basis points from a quarter earlier, to 2.54%.

Mr. Duncan said his trade group expects home sales to decline modestly this year and the effects of Katrina to continue to be felt.

The MBA expects “the risks associated with a larger ARM share — which is now about 25% of outstanding loans — to be evident in a rising [interest] rate environment,” he said.

However, he also said that ARMs’ share of the market should fall this year, and that delinquencies should increase only modestly.


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ID: 37109
Author(s): NCRC
Publication date: 29/03/06
   
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Created: 29/03/06. Last changed: 30/03/06.
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