The national mortgage loan delinquency rate increased sharply in the third quarter of 1990 according to MBA's National Delinquency Survey (NDS). Is this the beginning of an upward trend that will lead to higher foreclosure rates, or is it simply a statistical anomaly? Only the future can provide a definitive answer, but it clearly would be imprudent to ignore the former possibility.
Chart 1 shows the percent of loans 60 days or more delinquent, but not in foreclosure, by loan type. (All values are based on the "traditional group" of reporters from the NDS and are adjusted for normal seasonal variation.) The 30-day delinquency category is omitted because it often shows meaningless volatility (e.g., a rise in one quarter offset by an equal decline in the next quarter, etc.). However, increases in 60-day or more delinquencies are much more meaningful and often signal growing problems.
The chart shows that 60-day or more delinquency rates rose for all three loan types, with a 9 basis point increase for conventional loans from the second quarter to the third, a 17 basis point increase for VA loans, and a 12 basis point increase for FHA loans. As a result, the rate is now the highest in over three years for VA loans, two years for FHA loans, and nearly a year for conventional loans.
The rise in the delinquency rate is not surprising in light of the recent weakness in the economy and very moderate home price appreciation. These factors, along with several others such as consumer debt burdens, have been found to be important determinants of delinquencies and foreclosures. (Please see the article in the October 1990 issue of Mortgage Banking, pp. 45-59, on the subject.)
Chart 2 shows the unemployment rate of 25- to 54-year old males--a group generally used to remove the influence on the overall unemployment rate of shifts in the age and sex distribution of the labor force--and home price appreciation measured using the National Association...