More American homeowners are slipping behind on their monthly mortgage payments, especially those who had subprime credit histories and scores when they applied for their loans. Roughly one of every 20 homeowners with a mortgage -- 4.7 percent -- was at least 30 days late during the third quarter, according to the Mortgage Bankers Association's national delinquency survey released last week. The survey examined payment performances on over 42.6 million active home mortgages.
One of every eight borrowers with subprime credit histories was late during the same quarter. Subprime borrowers who took out adjustable rate mortgages were even more likely to be behind -- one in every seven were delinquent last quarter.
In economically hard-hit areas, such as the industrial upper Midwest, late payments were far more commonplace. In Michigan, for example, 21.5 percent of all subprime homeowners with adjustable-rate loans were delinquent, and one of every 10 were in the process of foreclosure. In Indiana and Ohio, 17.5 percent of subprime ARM borrowers were late, and more than 10 percent of them in foreclosure.
Katrina-ravaged Mississippi (27.3 percent delinquency rate) and Louisiana (24 percent) also registered exceptionally high rates of late payments on subprime ARMs.
Even homeowners with the best credit -- so called prime borrowers -- saw their delinquency rates inch up in the latest survey: 2.4 percent were 30 days late or more during the third quarter versus 2.3 percent in the preceding quarter. Prime borrowers in a handful of states -- primarily in the Western region -- continued to lead the nation in on-time mortgage payment performance.
In California, just 1.1 percent of prime-credit homeowners were late on their monthly payments -- less than half the national delinquency rate. In Hawaii, the rate was 1.2 percent and in Oregon 1.3 percent.
Contrast that with prime borrowers in Puerto Rico, where 8 percent were delinquent by 30 days or more. Or Mississippi (6.1 percent), Louisiana (5.6 percent), Michigan (3.8 percent), Ohio (3.7 percent) and Indiana (3.6 percent.)
Though the overall trend in delinquencies is upward, Mortgage Bankers Association chief economist Doug Duncan said the slightly higher rates were expected as the housing boom wound down. They are also well below the recent high points reached during the 2001-2002 period.
The subprime late payment jumps, however, "were noticeably larger" than projected, "particularly for subprime adjustable rate mortgages." The reason for the spike: "subprime borrowers are more likely to be susceptible to the cumulative increases in (short-term) rates we've experienced, and the slowing of home price appreciation that has resulted," said Duncan.
But "it is important to remember," he added, "that delinquency and foreclosure rates have been quite low the last two years."
The national foreclosure rate of 1.05 percent during the third quarter was up slightly compared with the same period the year before. But today's rate is well below the 1.6 percent level reached in early 2002, when subprime foreclosures hit 8 percent.
The practical effect of the higher delinquency rates in the subprime sector: Higher rate quotes for new subprime mortgage applicants. Subprime loans traditionally have been priced at 2 to 3 percentage points above prime. Now that gap is likely to increase, said Duncan, as "investors demand higher returns in the form of wider credit spreads, particularly for (subprime) loans originated in the second half of 2006."