Report: Government-backed loans drove increase in delinquencies

An increase in delinquencies in government-backed Federal Housing Administration loans was probably the largest contributor to the overall pickup in national delinquencies during the second quarter, according to a report published Tuesday by analysts at investment bank Keefe, Bruyette & Woods.

As Times staff writer E. Scott Reckard reported Monday, the percentage of homeowners who have missed at least one mortgage payment has risen for the second straight quarter, according to a closely watched survey by the Mortgage Bankers Assn. That is a bad sign for the housing market and an indication of just how much homeowners are struggling to make their payments in the midst of a stubbornly bad economy.

Delinquency rates increased to 12.62% from 12.03% for FHA loans, outpacing the increase in the overall rate. The overall delinquency rate for loans on one- to four-unit residential properties increased to 8.44% on June 30, up from 8.32% on March 31. The delinquency rate was slightly lower at 8.12% in California, one of the states hit the earliest and hardest by the housing meltdown.

The KBW analysts, in their note, said that the uptick in FHA loan delinquencies was the largest driver of the overall rate. As those loans mature they will probably continue to push up the overall delinquency rate going forward, they said.

"We believe that the moderation in FHA loan growth will likely result in further increases in delinquencies on this portfolio which will likely push up the national averages,” the analysts wrote. “However, this credit risk resides with the government.”

The federal agency has significantly increased the number of loans it guarantees after the housing market started to stutter five years ago. The number of fixed-rate FHA loans approached nearly 6 million by the end of the second quarter of 2011, up from about 2.8 million in the third quarter of 2007, according to the KBW report.

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-- Alejandro Lazo

Twitter: @AlejandroLazo

Photo: From left, Housing and Urban Development Secretary Shaun Donovan, Treasury Secretary Timothy Geithner and Federal Deposit Insurance Corp. Chair Sheila Bair talk prior to President Obama delivering remarks about the home mortgage crisis in 2009, at Dobson High School in Mesa, Ariz.

Credit: AP Photo/Gerald Herbert