VA Loan Updates

The Mortgage Bankers Association’s release yesterday of its National Delinquency Survey showing a significant rise in delinquencies and foreclosures in the fourth quarter of 2006 spooked trading exchanges and raised concern from Wall Street to Capitol Hill about the potential for a broader financial crisis.

The MBA’s report showed that delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 4.95 percent of all loans outstanding in the fourth quarter of 2006 on a seasonally adjusted (SA) basis, up 28 basis points from the third quarter, and up 25 basis points from one year ago.

Increases in delinquencies were seen for all major loan types, but most notably for subprime and FHA loans. Delinquency rates for prime, subprime, FHA, and VA loans increased on a seasonally adjusted basis relative to the third quarter. The delinquency rate for FHA loans reached a new record in the fourth quarter.

The percentage of loans in the foreclosure process was 1.19 percent of all loans outstanding at the end of the fourth quarter, an increase of 14 basis points from the third quarter of 2006, while the SA rate of loans entering the foreclosure process was 0.54 percent, eight basis points higher than the previous quarter and a record high.  Compared with the fourth quarter of 2005, the percentage of loans in the foreclosure process was up 20 basis points while the percentage of loans entering the foreclosure process was up 12 basis points.

“Although the U.S. economy and job market remain solid, the housing market continued to decelerate in the fourth quarter of 2006.  Nationally, house prices increased at a slower rate and the pace of sales and construction activity continued to slow,” said Doug Duncan, MBA’s Chief Economist and Senior Vice President of Research and Business Development.

“The significant increases in delinquency rates has in some cases led to unexpected increases in credit losses and the failures of some subprime specialist firms. As we have noted before and as recent events have made clear, market discipline in this industry is swift, can be severe, and is more effective at changing lending practices than any potential changes in regulation.”

Indeed, the rapid plunge in the fortunes of subprime specialist New Century Financial (NEWC) over the past few weeks provides stark evidence of the potential damage to other banks and mortgage finance companies. Irvine, Calif.-based New Century has been unable to secure additional funding for new loans or to service outstanding loans, and now is in risk of declaring bankruptcy.

New Century said that none of its own lenders are willing to provide new financing, that it has been found in default of many of its financial agreements, and that it does not have the funds necessary to meet its obligations, which are estimated at $8.4 billion. The company’s stock price has fallen just this calendar year from about $30 per share to just $3.21 at the yesterday’s close.

Other lenders have felt similar effects. Accredited Home Lenders (LEND) share price fell 65 percent on Tuesday, and Countrywide Financial (CFC) fell 4.7%. Meanwhile, Washington Mutual (WM) fell 5 percent in Tuesday’s trading.

MBA’s Duncan said, “Given our macroeconomic forecast of below trend economic growth and a slowly recovering housing market, we would expect delinquency and foreclosure rates to level off as the housing market regains its footing towards the end of 2007,” said Duncan.

That could be a long time for many lenders and builders even if it were to come true.

Found here.

Bookmark to:

Hide Sites