The percentage of homeowners who are falling behind on their mortgage payments is growing, reflecting the lingering effects of California’s real-estate slump and a raft of lower-quality loans made in 1994 and 1995.
The rise in mortgage delinquencies coincides with a surge in other household-credit problems, including higher credit-card delinquencies and a jump in personal bankruptcies. But economists say that while a growing economy may ease many of the consumer-credit woes, the mortgage problems may linger. That’s because recent loans tend to become more troublesome as they age.
The Mortgage Bankers Association of America, which tracks the rates, will not release the first-quarter number until next week, but says the change will be “dramatic.” In the fourth quarter of 1995, 4.25 percent of all loans were 30 days or more past due, up only slightly from the third quarter.
Because many people will miss one payment but no more, lenders focus more closely on loans that are 90 days or more past due, and there are indications that that number is climbing, too. Federal National Mortgage Association, the nation’s largest buyer of mortgages, said that 0.58 percent of its loans were seriously delinquent at the end of March, up from 0.48 percent in March 1995.
Economists and market watchers say another factor in the higher delinquency rate is a huge increase in loans made with just 5 percent or 10 percent down, which by definition are riskier than loans with larger downpayments. Last year, homeowners put down less than 10 percent on more than a quarter of all conventional loans made; in contrast, just 9 percent of the loans made in 1991 had such small downpayments.
In addition, lenders starved for volume after selling a record $1.02 trillion in mortgage loans in 1993 lowered their credit standards when interest rates climbed in late 1994 and early 1995. The default rates on those loans already are higher than is usually expected of one- and two-year-old loans.
Encouraged by Congress and regulators to get more lower-income families into their own homes, lenders are continuing to make low-down-payment loans. But mortgage buyers say they’ve tightened credit standards and taken other steps to cut their risk. Last year, Fannie Mae began requiring that homebuyers who put down only 5 percent of the purchase price buy mortgage insurance equal to 30 percent of their loan value, up from 25 percent before. Freddie Mac says that after reviewing troubled loans for lax underwriting, it asked lenders to buy back 50 percent more loans from it in 1995 than it did in 1994.
And Mortgage Guaranty Insurance Corp., a large Milwaukee-based mortgage insurer, says it raised its credit standards in mid-1995 and has been rejecting more loans since then.
