Are homeowners in some parts of the country more likely than others to pay their mortgages on time? If you had to guess where the scrupulously on-time borrowers live, would you pick states with traditionally thrift, conservative financial stereotypes like New Hampshire, Vermont or the Midwest?
Would you perhaps also guess that some of the states with the highest prices, highest housing appreciation rates and highest uses of interest-only and "option ARM" loan programs might have the highest incidences of late and missed payments? After all, aren't home buyers in such markets -- think California, for example -- stretched to the limit to purchase their high priced homes in the first place?
Well guess again. California homeowners may have to deal with sky-high prices and monstrous mortgage bills, but they pay their loans on time more reliably than homeowners in all other states but one -- high-cost, high inflation Hawaii. New Englanders tend to be relatively dependable with on-time mortgage payments, but they are not among the leaders. And the heartland Midwest actually has several states with some of the highest delinquency rates on home loans and exceptionally high rates of foreclosures.
All these home mortgage performance factoids can be gleaned from the latest national delinquency and foreclosure survey by the Mortgage Bankers Association of America. The quarterly study covers almost 40 million active mortgage loans and is considered authoritative on the subject.
At the end of the second quarter of 2005, Hawaii, where housing appreciation soared by almost 26 percent last year, just 1.56 percent of all homeowners with mortgages were even slightly in arrears. That compares with a national average of 4.3 percent. California, where median home prices are stratospheric and rose by another 25.2 percent last year, had a late payment rate of just 1.88 percent. New Hampshire and Vermont, by contrast, had late payment rates of 2.95 percent and 2.5 percent respectively.
Where are homeowners most likely to fall behind? The highest rates of late payments and foreclosures are in states that have relatively slow-rising home prices, and slow-growing economies with above-average unemployment. Among the slowest payers: Mississippi borrowers, whose delinquency rate at mid-year stood at 8.5 percent. Louisiana was next at 6.9 percent, followed by Indiana (6.7 percent), Tennessee (6.32 percent), Texas (6.31 percent) and Ohio (6.13 percent).
The two big hurricanes this season, Katrina and Rita, undoubtedly will increase delinquencies in the Gulf Coast states sharply, despite the fact that many lenders have announced that they will forbear -- allow delinquencies -- for up to three months on properties in storm-savaged areas.
Foreclosures generally are the highest in the Rust Belt states where factory layoffs have been extensive and unemployment rates intractably high. Though the national average rate of foreclosure was 1 percent as of mid-year, Ohio homeowners had a 3.3 percent rate, followed by Indiana (2.8 percent), Kentucky (1.9 percent) and Mississippi (1.7 percent).
The lowest rates in the U.S., by contrast, were in some of the highest-fizz markets: California (0.17 percent), Hawaii (0.23 percent), Virginia (0.29 percent), Arizona (0.35 percent) and New Hampshire and Vermont (both 0.36 percent). Average foreclosure rates would be considerably higher, say mortgage market economists, if the lending industry had not adopted widespread "loss mitigation" programs that allow delinquent borrowers to stay in their houses and "work out" their problems. Among the techniques used: restructuring the note terms to fit the borrower's needs better; deferring arrearages to the final payoff of the loan; decreases in note rates; and "short sales" and sales-in-lieu of foreclosure, which allow seriously delinquent borrowers to sell their properties to pay off the loan balance prior to foreclosure.
