Mortgage Delinquencies Are Still Rising

The housing market is showing tentative signs of stabilization, but you wouldn't know it from looking at mortgage delinquency data. Nationally, the delinquency rate on residential mortgages is at record levels, and still appears to be rising. Take a look at the chart, below, which shows the percentage of Fannie Mae's single-family home loans that are at least 90 days past due.

The delinquency rate for August of 2009 (i.e., the latest available) was 4.45%. That's almost three times higher than the 1.57% delinquency rate that was recorded in August of 2008, when the financial crisis was already well underway. While it's certainly not scientific, I think it's reasonable to look at the chart and conclude that delinquencies are likely to continue rising for some time.

Note: The Mortgage Bankers Association (MBA) publishes its own National Delinquency Survey. The headline number from the second quarter survey was 9.24%. The MBA figure is heavily skewed by the inclusion of subprime mortgages, which are largely absent from Fannie Mae's portfolio. More importantly, the MBA uses a lower threshold for 'delinquent', requiring only that the borrower has missed a payment.

At first blush, the situation appears to be somewhat better here in the Bay Area. Take a look at the chart, below, which shows the number of default notices recorded in San Francisco as well as the greater Bay Area.

Recorded default notices appear to be stabilizing. There's an important distinction, however, between a default notice and a delinquency. A borrower is said to be delinquent when he falls behind on his loan payments. When he falls far enough behind, the lender may record a Notice of Default, which is the first step in the foreclosure process. Recent changes in California law make the foreclosure process more difficult, so the number of recorded default notices probably understates current delinquency rates.

In other words, it seems likely that delinquency rates here in the Bay Area are still rising, just as they are at the national level.