Mortgage Delinquencies in Fourth District Metropolitan Areas
The U.S. housing market continued to be under considerable stress in the first quarter of 2008. Recent data from the Census Bureau show that building permits and housing starts are still falling, and a recent report by Equifax and Moody's Economy.com indicates that mortgage delinquency rates rose again in the first quarter. Mortgage delinquency rates measure the percent of mortgage holders who are past due on their payments and also represent the pool of mortgages at risk of entering foreclosure.
It is well documented that Midwestern states such as Michigan, Indiana, and Ohio have experienced relatively high rates of mortgage delinquency and foreclosure. In fact, the rise in delinquency and foreclosures rates in these states preceded that of the nation as a whole. But what is happening at the metro-area level? We looked at delinquency rates from January 2003 to February 2008 in the major metropolitan areas of the Fourth District to discern the trends for a range of mortgage types. We focused on 60-day mortgage delinquency rates in Cincinnati, Cleveland, Columbus, and Pittsburgh, the four largest metropolitan areas of the District. The 60-day delinquency rate reports the percentage of loans for which payments are more than 60 days late but less than 90 days late. The reason to focus on 60-day delinquencies is that they give us a look at loans that are entering into the delinquency process but also have multiple missed payments.
The data we examined come from LoanPerformance, a company that collects information on the payment status of mortgages from a large number of loan-servicing firms. LoanPerformance estimates that the data it collects from these servicing firms include roughly 75 percent of outstanding prime mortgages and 40 percent of outstanding subprime mortgages. The loans are categorized by the type of servicing firm that made the loan, those that focus on subprime mortgages or those that focus on prime mortgages, as well as by whether the loan has a fixed or adjustable rate. (Note that the distinction between prime and subprime is based on the servicer and not the borrower.)
Nationally, prime, fixed-rate loans currently account for about 65 percent of all outstanding loans according to the Mortgage Bankers Association. There has been a steady increase in delinquency rates for this type of loan across all four major Fourth District metro areas since the beginning of 2007. More troubling is the fact that the delinquency rates for prime, fixed-rate loans appeared to jump sharply toward the end of 2007. The average in all four metropolitan areas went from 0.56 percent in January 2007 to 0.66 percent in February 2008. Cleveland's delinquency rate for this loan type has tended to be higher than that for the other three Fourth District metro areas, though in January Columbus's 60-day delinquency rate approached Cleveland's rate before moving back closer to the rates for Cincinnati and Pittsburgh.
Prime, adjustable-rate loans have higher delinquency rates than prime, fixed-rate mortgages and currently average 0.86 across the four metropolitan areas. Delinquency rates for these loans began to trend up noticeably in early 2006, about a year in advance of what we observe with prime, fixed-rate products.
Nevertheless, despite these recent increases, 60-day delinquency rates for prime loans are still about one-fifth to one-sixth that of the current delinquency rates for subprime loans, depending on whether one compares fixed- or adjustable-rate loans. Delinquency rates for both subprime fixed- and adjustable-rate products have risen markedly since 2005. In the latest month of data (February 2008), delinquency rates for subprime fixed-rate mortgages were between 2.6 and 3.3 percent, and for subprime adjustable-rate mortgages, between 4.2 and 5.7 percent, across the four metropolitan areas.
Interestingly, while Cleveland's 60-day delinquency rate for most of these types of loans tends to be worse than the other metros areas, the pattern for subprime, adjustable-rate mortgages is an exception. In fact, in recent months, Cleveland's delinquency rate on this type of mortgage has been below that of the three other metro areas. This is somewhat surprising since Cleveland has a much higher foreclosure rate for subprime, adjustable-rate mortgages than do the other three metropolitan areas. For example, Pittsburgh's foreclosure rate for these loans in February was 9.4 percent, while Cleveland's was 18.4 percent. This suggests, and some preliminary analysis of the data appears to support the conjecture, that a subprime, adjustable-rate mortgage that was 60 days delinquent in Cleveland had a substantially higher likelihood of going into foreclosure than one in Pittsburgh.
That conjecture aside, the bottom line is that across all four different loan types delinquency rates are either rising or remain relatively elevated in the Fourth District's major metropolitan areas.