NEW YORK - Housing finance agency delinquencies, while still high, declined in the first quarter of 2010, the first time improvement since overall performance of loans began to deteriorate in the second quarter of 2008, Standard & Poor's Ratings Services said in a report, which suggests default rates could rise in the second quarter.
The now expired home buyer tax credit could have provided the impetus for this slow down in defaults, the agency said. Falling home prices pushed up delinquency rates, as homeowners faced with an inability to sell their home or refinancing their mortgage, “simply decide not to continue making payments on an asset that is worth less than what is owed,” S&P said in the report.
While the S&P/Case-Shiller National Home Price Index reported a 3.2% decrease in delinquencies during the first quarter of 2010, the number remains higher than it was in first-quarter 2009.
“Declining mortgage applications for home purchases, slower sales following the expired tax credit, more distressed home sales as a result of foreclosure, a large backlog of distressed properties that haven't been marketed for sale yet, and a high unemployment rate may further hamper home prices,” S&P said, which may lead to an increase in default rates on HFA loans may in the second quarter of 2010.
Standard & Poor's said home prices and sales will remain volatile until employment improves.
“At present, we are uncertain as to whether temporary factors such as the expired home buyer tax credit program had an impact on the decline of delinquency rates,” the report said. The report said foreclosures could be expected for the next 18 months.
“Additional foreclosures could put more pressure on home prices, possibly affecting loans in HFA portfolios. We believe this could lead to more increases in HFA delinquency rates. The stimulus package aided growth in the economy in early 2010, but we except the impact of stimulus to decrease over the next year or two,” the report said. “We expect that HFA delinquencies will likely remain high without a decrease in unemployment and economic improvement. Seasonally, housing typically performs well in second and third quarters, which may help lower delinquencies in the near future. We don't expect fluctuations in delinquency rates alone to cause ratings action at this time.”
