Florida Home Loan Rates Fall Slightly; Experts Concerned With Mortgage Delinquencies

Florida home loan rates didn’t show much movement this week as the market waits to see what the Federal Reserve will do when it ponders interest rates next week.

According to Bankrate.com, 30-year fixed-rate mortgage rates fell .04 percent to 6.39 percent. The national survey showed an average of 0.34 discount and origination points. A year ago, the 30-year index was 6.15 percent, while four weeks ago, the loans averaged 6.34 percent.

The 15-year fixed-rate mortgage, meanwhile, dropped .02 percent to 6.06 percent. The benchmark 5/1 adjustable-rate mortgage (ARM) also fell slightly, dropping .03 percent to an average of 6.04 percent. Fewer borrowers are choosing ARMs this year, as rates are climbing faster than fixed-rate mortgages. In 2004 and 2005, about a third of new mortgages were ARMs, while the last few weeks have shown around 28 percent.

The waning popularity of ARMs is good news for analysts concerned with the national rise in foreclosures. Late payments, also known as delinquencies, are becoming more common thanks to the 2003-2005 surge in ARMs.

“We have been expecting an uptick in delinquencies due to a number of factors,” said Doug Duncan, chief economist for the Mortgage Bankers Association, who lists three primary reasons:

1. Many people have now had their mortgages long enough to get into trouble. Homeowners don’t become delinquent on their payments immediately — it usually takes a few years.
2. Over the past two years, a bigger-than-usual share of people got ARMs and subprime mortgages — in other words, bad credit Florida home loans.
3. Energy prices and interest rates have been rising, squeezing the budgets of people whose budgets were already stretched thin.

As mortgage rates rise, the pain is especially acute among ARM borrowers whose monthly payments are slated to go up. On the flip side, because the increase in delinquencies is fairly small, and some of the increase is attributed to Hurricane Katrina, most experts are not panicking. But for how long will this go on before someone sounds the alarm?

THE RISING RATE OF DELINQUENCY
The Mortgage Bankers Association calculates a seasonally-adjusted rate of delinquency every three months — the percentage of home loans where the payments are at least 30 days past due. In the final quarter of 2005, 4.7 percent of mortgages were delinquent, compared to a 4.38 percent a year before. That’s a 7.3 percent increase.

Pretty substantial, and definitely something you would notice if you were collecting mortgage payments. But when you remove Louisiana and Mississippi home loans that were affected by Katrina, the national rate is 4.55 percent in the fourth quarter of 2005, not 4.7 percent — under this calculation, delinquencies went up 3.9 percent in a year.

Whichever figure you accept, experts say delinquencies will continue to rise, even if the economy improves. Loans get older, people keep their ARMs, interest rates rise: These are factors that won’t go away. In a sense, Florida home loans are like human beings in that they go through a predictable cycle of life stages:

• The sweet and care-free early years
• Turmoil, stress in adolescence
• Gradual mellowing in adulthood

It’s a familiar pattern, and as a result, home loans hit their adolescence — and have their highest delinquency rate — in years three through five.

Duncan explains it this way. When a family buys its first home, the buyers have cleaned up their credit report and saved some money, gotten the place inspected and made sure necessary repairs were done. This good karma lasts a couple of years, but circumstances can change. Appliances wear out and break. People lose jobs, get divorced, have kids. All of these events are financially traumatic, especially when you haven’t had time to save up.

Thus, years three through five are when delinquencies and foreclosures peak. In the first couple of years, families are still in good shape. After about five years or so, they have saved some money and built up a little home equity. Half the mortgages out there are three years old or less, meaning they have yet to enter the peak delinquency years.

You can’t predict the future, but you can try to prepare yourself for life changes by squirreling away as much cash as you can. A Florida home loan is not a sprint, but a marathon. Find the best mortgage type for you and be smart about your money. That way, you’ll give yourself the best chance to sail through years three through five trouble-free.