Delinquency Rates Go Up and Down

In the fourth quarter of 2001, which included the aftermath of September 11th, the number of homeowners who made their mortgage payments late was higher than expected.

The fourth quarter 2001 FHA delinquency rate of 10.97 percent was the second highest for the National Delinquency Survey since 1972. The highest delinquency rate on record for FHA loans, 11.36 percent, was reported in the third quarter of 2001. The rate for conventional loans was 3 percent, down from 3.13 percent from the previous quarter.

The number of conventional loans currently being foreclosed upon rose to 0.76 percent. The percentage of FHA loans in foreclosure increased to 2.17 percent. The percentage of VA loans in foreclosure increased to 1.33 percent.

During a recent press briefing, the Mortgage Bankers Association of America said the primary reason for the surge in delinquency rates for the third and fourth quarters was September 11th, and the ensuing anthrax mail scare.

According to MBA spokesperson Laura Armstrong, “the whole mail system slowed down at that point, so the monthly statement from your lender could have gotten there late, and the mail you sent arrived late.”

Douglas Duncan, the MBA’s chief economist concurred. “Some people were reported as delinquent even though they had sent their payments on time. Lenders waived fees because they knew that some people’s payments were sent on time, but just didn’t get there.”

Duncan did say that increasing unemployment could account for some of the increase in delinquency rates as well. However, the delinquency rate for the first quarter of 2002 has dropped from fourth quarter levels, which is why Duncan believes the anthrax scare could have caused a temporary surge.

Quality Control to Reduce Fraud

Freddie Mac, the secondary mortgage market giant, recently announced a new tool designed to detect inflated property valuations.

The “Home Value Calibrator” can identify inflated property valuations that may be the result of fraud of misrepresentation, according to a spokesperson for Freddie Mac.

Home Value Calibrator automatically analyzes home valuation data and provides a score that indicates whether there are inconsistencies with the way the home has been valued by the appraiser. The lender can input an address and the details of the loan and within seconds, the Home Value Calibrator generates a report that helps predict whether a loan is at high, moderate or low risk of a faulty appraisal.

“Inflated appraisals are a key component of many abusive lending practices,” said Michael Bradley, vice president of Strategic Information Services for Freddie Mac. It also provides “fraud and risk protection to the consumer. The borrower who buys an overpriced home may lose money when they try to sell.”

Freddie Mac relies on its extensive database of loans on specific properties to help determine the correct value of a home. It uses the same pool of information as when calculating it’s regular study on home price valuations.

One lender that has been testing the system likes it. “Before using Home Value Calibrator, we were able to target approximately a hundred loans each month to undergo an expensive and time-consuming review process,” said Mike Ellis, senior vice president for GreenPoint financial, a New York-based specialty housing finance company.

Now, the company can review thousands of loans in a fraction of the time. The system “identifies the loans we need to look at more closely so the good ones can be processed quickly.”

May 4, 2002.