WASHINGTON – The Mortgage Bankers Association delivered an early holiday present to lenders earlier this month. The MBA's latest National Delinquency Survey, covering the third quarter 2003, found the delinquency rate at 4.28%, the lowest in three years. It was down 34 basis points from 4.62 in second-quarter 2003, the highest percentage point drop since the first quarter of 1990. In a telephone news conference, MBA senior vice president and chief economist Doug Duncan put the news in context of the overall economy during that time period. "In that quarter we saw corporate profits start to rise, we saw business fixed investments start to rise, we saw huge continued productivity gains, and we saw the GDP as we now know rise in the neighborhood of 8 percent at a seasonally adjusted annual rate," Duncan said. "This makes the large drop in delinquencies consistent with what we've been seeing." Duncan continued with what most lenders will see as more welcome news. "Employment is the single most important determinant of delinquency levels and rate changes. In the third quarter payroll job growth totaled 103,000 compared to a loss of 181,000 in the second quarter," he said. "We also believe the payroll side is going to be revised upward significantly as we go forward. There are substantial benefits for the economy, including the mortgage market. Housing activity remains strong. Cash-out refinancing remains strong. Home prices rose at a slightly larger appreciation in the third quarter than in the previous quarter." MBA's delinquency rate does not include loans actually in the foreclosure process. The foreclosure inventory percentage at the end of the third quarter was 1.12%, unchanged from last quarter but three basis points lower than the third-quarter 2002 rate of 1.15%. Duncan indicated the foreclosure figures were no surprise. "Foreclosure rates usually lag delinquency rates by a quarter or two. This quarter's increase in new foreclosure starts relates to second quarter payroll job losses in the economy," Duncan said. That fact the overall foreclosure percentage remained unchanged "indicates the workout percentage increased in the third quarter." The MBA has made a couple changes in the delinquency survey, aimed at improving accuracy. More lenders have been recruited. The survey now covers 35.1 million mortgages, an increase of 1.3 million loans. In the past, the MBA has stressed the relatively small percentage of subprime loans involved in the survey means they don't necessarily reflect the entire subprime market. However, the sample has been increased by 2.5 million loans for a total of 4 million mortgages. By the time the next quarterly survey is released in March, 2004, MBA plans to have two quarters of meaningful subprime results to compare. -

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