WASHINGTON -- Homebuyers and refinancers nationwide who closed on new mortgages during the first six months of 1995 are beginning to give the jitters to lending industry experts: Their rate of serious delinquency on monthly payments was significantly higher than any comparable vintage of borrowers during the past five years.
Compared with borrowers in the first half of 1994, the class of 1995 has a delinquency rate three times higher, according to previously unpublished data from a national service that tracks more than 17 million home mortgage loans monthly. The 1995 six-month rate is six times as high as loans of a similar age in 1993.
The new data -- assembled for presentation soon to the major private lenders who contribute loan performance reports monthly San Francisco-based Mortgage Information Corp. (MIC) -- apparently reflect this year's trends toward lower down payments, eased credit standards and high competition among loan originators, according to MIC President Dan Feshbach.
Serious delinquency -- defined as being 90 days or more behind on payments or already in the foreclosure process -- affects only a small percentage of new borrowers. Just six out of every 10,000 home loans from the first half of 1995 fall into that category thus far. But that rate not only is notably higher than on comparable batches of loans from prior years, according to Feshbach, but may well translate into much larger problems in the coming several years.
Default and foreclosure rates from any annual vintage of home loans tend to worsen over time, especially in the first three years after closing. Given the financial implications of foreclosures and nonpayments, lenders are eager to know about nationwide and regional delinquency trends from the earliest possible time of measurement. Mortgage Information Corp.'s loan performance database functions as the industry's seismograph or early-warning monitor, picking up even subtle changes in borrowers' payment behavior.
Regional and national lenders, loan servicers and investors voluntarily share their otherwise confidential monthly information on loan characteristics and repayment performance with MIC.
The firm slices and dices the raw data by geographic area, loan-to-value ratios, loan types and other measures, and then prepares private analyses for participating lenders or clients.
The early signs from the class of 1995 "deserve to be watched carefully," in Feshbach's words. Compared with 1993, when just 20 percent of all new loans carried down payments less than 20 percent, a record 44 percent of this year's new loans in the database were closed with less than 20 percent down.
At the six-month mark in 1993, just 0.01 percent were already seriously delinquent. The rate as of July for low down payment loans was 0.06 percent. New adjustable-rate mortgages were also performing poorly.
The serious delinquency rate on 1995-vintage adjustables as of July was five times the rate for comparable adjustables from both 1993 and 1994.