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HFA delinquencies exceed state averages for first time: S&P

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Home loans made by state housing finance agencies are performing worse than those made by others in the state for the first time since Standard & Poor's started tracking the data in 2006. Not only that, after five years of tracking, the HFA delinquency rate is now at it highest point. As of the third quarter of 2010, 7.12% of HFA mortgages were 60 days or more delinquent, up 0.45% from the second quarter. Delinquencies were up 1.21% from a year earlier. The HFA rate was only 3.12% five years ago when S&P began collecting this data. Comparatively, the state mortgage loan delinquency rate was 6.97% in 3Q, down about 0.29% from the previous quarter. State HFAs issue tax-exempt bonds to finance loans for borrowers and first-time buyers purchasing a home at a reduced interest rate. The entities are often in charge of giving out government assistance to the unemployed, in order to make mortgage payments on time. S&P said the issue with rising HFA delinquencies is widespread across the nation and directly correlated to the unemployment rate. "In our view, the increase in HFA delinquencies is not surprising given the continued high unemployment rates," the firm wrote in the report, adding that it expects unemployment to remain above 9% through 2011. Nearly three-fourths of HFA programs, a total of 24 programs, experienced an increase in delinquency rate during the third quarter, while only nine saw a decrease. This is the second consecutive quarter rates climbed in more than 20 bond programs, according to S&P. Thirteen HFA bond programs had higher delinquency rates than state loans, up from nine programs in the second quarter. Kentucky's housing finance agency had the most delinquencies, up to 17.9%, followed by California (13.9%), Georgia (13.5%), Michigan (12.2%), and New Jersey (11.9%). The five states with the lowest delinquency rates in 3Q were two different agencies in Alaska at 1.7% and 2.3% delinquent, two in Wisconsin at 2.1% and 2.2%, and one in South Dakota at 2.8%. S&P made one positive note concerning delinquency spreads, in the report. Year-over-year 3Q HFA delinquencies grew 1.21%, which is down from the second quarter spread, 1.37%. "This was the second consecutive quarter in which the year-over-year growth in HFA loan delinquency slowed," S&P said. "We view this as a positive sign." S&P removed real estate owned assets from the delinquency status of HFA loans in the third quarter to make the data more comparable to the state data. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.

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