WHY ARE Miami homeowners who took out new mortgages during 1997 defaulting on them at a rate more than five times the national average? Why are Washington and Baltimore-area 1997 borrowers going delinquent at nearly double the national rate?
And why, by contrast, are homeowners in San Francisco, Cincinnati and San Jose who closed on new mortgages last year defaulting at a rate about one-quarter the national average?
No one knows for sure. But a new statistical study documents the huge -- and surprising -- variations in payback performances by recent home-loan borrowers in 85 of the largest housing markets in the country. The numbers come from the Mortgage Information Corp., a San Francisco-based research organization that tracks more than 24 million home loans every month. The corporation receives confidential payment-performance reports on about two-thirds of all outstanding home mortgages in the United States from lending and mortgage-servicing institutions.
At the request of this column, the firm ran a market-by-market computer analysis of 1997 home borrowers' payment performances since the beginning of this year. The data cover new loans on more than 3 million homes, according to Martin Wahl, director of Mortgage Information Corp. Using a measure of "serious delinquency" -- loans that are 90 days past due or in foreclosure -- the study found that the major markets with the biggest payment-performance problems to date among 1997 borrowers are: Miami, Orlando, Tampa-St. Petersburg, Orange County (Calif.), Los Angeles, New York, Washington and Baltimore.
All have serious delinquency rates well above the national average rate of 0.09 percent for 1997 borrowers. Serious
delinquencies in the first year of a mortgage are relatively rare, but they are of great concern to lenders because they frequently end as costly foreclosures with average losses to the lender in the tens of thousands of dollars. They may also be early warning signals of higher-than-average payment problems to come. When a market shows hints of unusual delinquencies in newly minted loans, lenders take note and may take defensive steps, such as tightening credit standards, cutting volume or raising rates to cover the added risk.
In the Mortgage Information Corp.'s analysis, 1997 new loan borrowers in Miami have a serious delinquency rate more than five times the national rate. Two other Florida markets were also trouble spots -- Orlando, with a rate 2.8 times the national average, and Tampa-St. Petersburg, 2.5 times the national rate.
Los Angeles' rate is 91 percent above the national average; New York is 82 percent above; Baltimore and Washington are both 73 percent above. Other metropolitan areas with above-average rates for 1997 borrowers include Norfolk, Va. (55 percent over the national), West Palm Beach and Richmond (45 percent over), and Charlotte (36 percent over).
At the opposite end of the spectrum among large urban markets are San Francisco, Cincinnati and San Jose (all three with serious delinquency rates 27 percent of the national average); Detroit and Milwaukee (36 percent of average); Phoenix, Buffalo and Oklahoma City (45 percent of average); Boston, Seattle-Tacoma, San Diego, San Antonio, Louisville, Sacramento, Omaha and Austin (all with rates 55 percent of the national average); and Providence and Tucson (64 percent).
Wahl says serious delinquencies early in the term of a mortgage can be caused by a variety of factors. Loans with low down payments are more prone to delinquencies than those with higher equity stakes by the borrower. Generally, markets with the highest prevailing loan-to-value ratios (LTVs) exhibit some of the highest rates of early delinquency.
Loans originated by local brokers for resale to large national wholesale lenders also have a higher delinquency rate, according to Wahl. Some problem loans are the result of fraud: Borrowers fake their incomes and resources to get the loan and then can't handle the monthly payments. In other cases, "we're looking at lax underwriting practices by lenders who find themselves in heavily competitive situations," Wahl said. To keep a high volume of business, they make loans to unqualified people.
Finally, the general health of local economies and the local real estate market play a role. Strong markets in California such as San Francisco, San Jose and San Diego produce lower serious delinquency rates than cities with lingering real estate problems.
Roll these factors together, Wahl says, and "you get a rough explanation" for the differences among major urban markets. If more than the average number of borrowers in an area are 90 days late or more in the first year of a new mortgage, there's something wrong: Lenders are handing out loans to the wrong people -- and that ultimately hurts borrowers as well as lenders.
Pub Date: 5/10/98