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FHA mortgage delinquencies resurge in second quarter

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After a hitting a three year low earlier in 2011, the Federal Housing Administration delinquency rate jumped more than a full percentage point in the second quarter, according to analysis from investment bank Keefe, Bruyette & Woods. The Mortgage Bankers Association reported delinquency rates on all outstanding mortgages ticked up 12 basis points in the second quarter to 8.44%. KBW analysts said resurging FHA delinquencies drove the increase as its larger book of business began to season. "We believe that an increase in delinquencies in the FHA program was the biggest contributor to the pickup in overall national delinquencies in the second quarter," KBW said. From the start of 2009 to the end 2010 the amount of loans, current or delinquent, in the FHA servicing portfolio increased from 3.8 million to nearly 5.7 million as the frozen mortgage market depended upon it, Fannie Mae and Freddie Mac to finance and guaranty 95% of the market. At the same time, delinquencies began to fade. The percentage of past-due loans declined from a high of 14.5% in the third quarter of 2009 to a low of 10.6% in the first quarter of 2011, still 60 bps above the low in the first quarter in 2007. "While this could partially reflect an improving book of business, we believe that much of it reflected the sharp growth in new loans," KBW said. But in the second quarter, the delinquency rate jumped to 11.7%. Seasonally adjusted, the increase was 59 bps to 12.62%. Mirroring the MBA report, the FHA second-quarter delinquencies increased the most in the early stages of default, according to KBW. For instance, 30-day delinquencies increased 87 bps to 5.27% in the second quarter, while those in 90-day delinquency dropped 5 bps to 4.55%. Seriously delinquent loans, those in 90-plus day delinquency or foreclosure dropped 13 bps to 7.65%. "FHA delinquency rates fell in 2010 as the FHA loans outstanding grew very sharply. We believe that the moderation in FHA loan growth will likely result in further increases in delinquencies on this portfolio which will likely push up the national averages," KBW analysts said. "However, this credit risk resides with the government since these loans are guaranteed by FHA." Write to Jon Prior. Follow him on Twitter @JonAPrior.

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