Aftershocks from Calif. Earthquake Persist
Fons, Jerome S., American Banker
The latest figures from Moody's mortgage credit indexes show that overall delinquencies are down somewhat from previous highs.
The figures cover performance for all Moody's-rated pools, which tend to
be backed by nonconforming jumbo mortgages and have a large concentration in California.
The figures show that despite the latest decline, two important events in early 1994 caused disruptions to U.S. mortgage markets that still linger:
*The sharp spike in 30-day delinquency rates for March 1994 appears to be related to the January 1994 Northridge, Calif., earthquake, though it is
difficult to establish a solid link. A similar spike afflicts 60-day delinquencies in April 1994 and 90-day delinquencies in May 1994.
*February 1994 saw a dramatic tightening in the Federal Reserve's monetary stance, which continued until July 1995. Because adjustable-rate mortgage borrowers have borne the brunt of the Fed's actions, delinquency rates for ARMs are trending upward.
Recent sustained ARM delinquency rates run contrary to an emerging seasonal pattern. Excluding extraordinary events, ARM delinquencies typically ease during the spring and rise in late summer. So far this year,
ARM delinquencies have remained high through the spring and early summer.
This may reflect payment adjustment shock as ARMs reset to higher coupons and, in fact, may reverse as the interest rate environment improves. Short-term interest rates peaked in December 1994 and have eased
about a point since then.
Contributing most to sustained delinquency rates are pools originated in
1989, 1990, and 1991, years in which housing prices in many areas peaked. Homeowners who purchase at the market peak often have difficulty selling the property without hardship.
Moreover, pools originated during these years have seasoned to the point
where delinquency rates typically begin to reach full stride. Pools originated in 1987 and 1988 are in their ninth and eighth years and should
show performance improvement. Their high delinquency and foreclosure rates
may reflect relatively small current pool balances rather than dramatic declines in housing prices since the origination dates. …