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Economic trends.

In the first quarter of 1991, the delinquency rate for mortgage loans on one-to four-unit residential properties rose to 4.95 percent--up 24 basis points from the fourth quarter of 1990 and 54 basis points from the first quarter or last year. The percent of loans in foreclosure also rose, to 0.97 percent in the first quarter of 1991 from 0.94 percent in the fourth quarter.

These increases were not surprising in light of national economic developments. Even before the economy tipped into recession in July 1990, economic growth was very modest and home price appreciation wwas sluggish--factors that contribute to rising delinquency and foreclosure problems. Once the downturn began, these factors worsened and the unemployment rate began rising rapidly. Obviously, many borrowers have difficulty meeting mortgage payments when they have lost their jobs.

While the general economic deterioration accompanying the recession affected all regions to some extent during the past year, the impacts were not uniform. Table 1 shows regional patterns in mortgage delinquencies and foreclosures.

Compared to year-earlier levels, the Northeast showed the second-largest increase in delinquency rates of all regions, but the largest increase by far in the percent of loans in foreclosure. The pronounced increase in foreclosure partly relfected the fact that the New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont) economy weakened significantly before the recession began; then was hit by broad-based national economic weakness to boot. That pattern, coupled with declining homes prices in some major markets, created conditions conductive to rising loan problems. Even so, New England still had levels of problem loans that were a [TABULAR DATA OMITTED] bit below the national averages.

The Mid-Altantic states (New Jersey, New York and Pennmsylvania) experienced similar, but not quite as severe, increases in problem loans.

Measwhile, the Midwest fared pretty well. In both the East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin) and West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) regions, delinquency rates rose relatively modestly, while the percent of loans in foreclosure actually fell. The reasons are straihtforward. The economies of the state in the Midwest are weathering the recession fairly well, and home prices, which did not surge during the midto late-1980s as they did in other parts of the county, have continued to rise modestly, not fall.

In the South, there was significant diversity. In the South Atlantic region (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia), the delinquency rate rose more than any other region. These eastern seaboard states are experiencing some of the same disproportionate slowdown that has plagued the Northeast. Further, the national weakeness in the housing sector hit some of these states extremely hard because housing-related manufacturing (e.g., furniture, carpeting, etc.) is concentrated in some of these states.

On the other hand, another part of the South--the West South Central region, which includes Arkansas, Louisiana, Oklahoma and Texas--had the smallest increase in their delinquency rate and one of the largest decreases in the percent of loans in foreclosure. The reason is that the energy states are gradually coming back from the extremely depressed conditions of the mid-1980s--depressed conditions brought about by the collapse of energy prices.

The final region in the South--the East South Central region, which includes Alabama, Kentucky, Mississippi and Tennessee--fared somewhere in between the other two regions in the South. The delinquency rate went up sharply, but the percent for loans in foreclosure declined modestly.

The West, as a whole, performed relatively well. I"n both the Mountain (Arizona, Calorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming) and the Pacific (Alaska, California, Hawaii Oregon and Washington) regions, delinquency rates rose very little and the percent of loans in foreclosure fell. Part of the explanation is that rapid home price appreciation in a number of these states in recent years created a substantial equity buffer. The fact remains that equity is the single most important factor in mitigationg loan problems generally, and foreclosures in particular.






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Title Annotation:first quarter, 1991
Author:Holloway, Tom
Publication:Mortgage Banking
Article Type:column
Date:Jul 1, 1991
Previous Article:Secondary market.
Next Article:An overriding concern.

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