Although some economists are concerned about homeowners' rising debt burden especially in high-cost, high-inflation markets, a new study suggests that those worries may be misplaced. Homeowners in "bubble markets" such as metropolitan Washington, California, Nevada, New England and the mid-Atlantic region are more likely to pay their mortgages on time than homeowners in parts of the country with lower housing inflation rates.
In California, for example, where house prices have risen at double-digit rates each year for five years, just 2.04 percent of borrowers were behind on their payments in the final quarter of 2004, according to the latest loan delinquency data compiled by the Mortgage Bankers Association. The national average during the same period was 4.6 percent.
In Texas, by contrast, where prices and inflation rates have been much lower, 6.8 percent of homeowners were behind on their payments. In Mississippi, 8.8 percent were delinquent. In Louisiana, 7.2 percent.
In high-priced Massachusetts, where aggregate housing price inflation has led the nation over a 20-year period, 3.2 percent of homeowners were delinquent. In the District, where prices have been high for years and keep rising, 3.7 percent of borrowers paid their mortgages late. Delinquency rates in high-cost New York, New Jersey and Florida were below the national average, while rates in Georgia (6.3 percent), Tennessee (6.4 percent) and West Virginia (6.6 percent) were considerably higher.
The new national delinquency and foreclosure figures, which cover payment performances on nearly 39 million outstanding mortgages, also documented wide variances among credit categories of homeowners and the types of loans they obtain. For example, if you are what the mortgage industry classifies as a "prime" borrower -- you have a solid credit history and you qualify for the best rates available -- you are far more likely to pay your loan on time than borrowers ranked "sub-prime," or riskier, no matter where you live.
Nationwide at the end of last year, according to the mortgage bankers' delinquency study, just 2.4 percent of all prime mortgage borrowers were behind on their payments, compared with nearly 11 percent of sub-prime borrowers with less favorable credit histories and scores. Sub-prime borrowers were 7.5 times more likely to be 90 days delinquent than prime borrowers, and eight times more likely to be in foreclosure proceedings.
Homebuyers who take out loans insured by the Federal Housing Administration are the most likely to let their payments slip. Nearly 13.2 percent of all FHA borrowers were delinquent at the end of 2004, according to the study, and 3.1 percent were three months or more behind. That's not surprising, however, because the FHA program specifically seeks to assist first-time buyers with moderate incomes. The FHA program is also lenient on credit history problems, offers minimal down payments and relaxed standards on household debt-to-income ratios.
Borrowers with adjustable-rate mortgages, including interest-only and "option" payment loans, were only slightly less likely to pay on time than borrowers with fixed-rate mortgages. In California, where interest-only mortgages have been a key factor in lowering monthly payments on high-cost houses, just 1.4 percent of prime credit-quality borrowers were behind on their loans in the last quarter of the year. Contrast that with low-cost, low-inflation Iowa, where more than 3 percent of prime ARM borrowers were delinquent, and Nebraska, where the late-payment rate was 3.9 percent.
Worst in the country on prime adjustable-rate on-time payments was Mississippi, where more than 8.5 percent of all homeowners with adjustables were delinquent. Worst for sub-prime ARMs: West Virginia, where more than 21 percent of homeowners with such loans were behind.
Apart from the regional and loan credit category results, the latest homeowner delinquency study contains an important national finding: Despite rising home mortgage debt levels around the country, on-time payment performance overall in 2004 was better than in the three preceding years. Households may be saddled with big mortgages in some of the biggest-ticket markets, but they seem to be handling that burden.
As long as interest rates remain low and employment growth continues, that could be an indicator that bursting bubbles are nowhere in sight.
Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.