by Calculated Risk on 12/05/2008 02:34:00 PM

First a graph, always a graph ...

Click on graph for larger image.

This graph shows the quarterly delinquency rate as reported by the MBA since 1979.

This shows that a fairly high percentage of mortgages were delinquent even in the best of times. As an example, in Q3 2005, at the height of the bubble, the MBA reported:

The third-quarter 2005 National Delinquency Survey (NDS), released today by the Mortgage Bankers Association (MBA), shows that the seasonally adjusted delinquency rate for mortgage loans on single-family residential properties stood at 4.44 percent at the end of the third quarter, down 10 basis points from the third quarter of 2004 but up 10 basis points from the second quarter of 2005.

So even though the Q3 2008 delinquency rate of 6.99% is a record level for the MBA series, it is important to realize that 4% to 5% of mortgages are considered delinquent even during the good times.

This is why the MBA also reports on seriously delinquent mortgages. In 2005, 1.82% of loans were seriously delinquent, now, prime loans alone are at 2.87%, and subprime loans at 19.56%.

And how does this compare to the Great Depression? Glad you asked.

From David Wheelock at the St. Louis Fed: The Federal Response to Home Mortgage Distress: Lessons from the Great Depression

Comprehensive data on mortgage delinquency rates do not exist for the 1930s. However, a study of 22 cities by the Department of Commerce found that, as of January 1, 1934, 43.8 percent of urban, owner-occupied homes on which there was a first mortgage were in default. The study also found that among delinquent loans, the averagetime that they had been delinquent was 15 months. Among homes with a second or third mortgage, 54.4 percent were in default and the average time of delinquency was 18 months. Thus, at the beginning of 1934, approximately one-half of urban houses with an outstanding mortgage were in default (Bridewell, 1938, p. 172).
For comparison, in the fourth quarter of 2007, 3.6 percent of all U.S. residential mortgages and 20.4 percent of adjustable-rate subprime mortgages had been delinquent for at least 90 days.

So the delinquency rate was far higher during the Depression. Note that Wheelock is using the 90 delinquency number for comparison (as opposed to the 30 day number in the chart above).

Here is some more interesting data from Wheelock:

This graph shows the foreclosure rate during the Great Depression. At the peak, there were almost 14 foreclosures per thousand mortgages per year during the Depression.

In 2008, according to the MBA, there will be about 2.2 million foreclosures started (not completed), and according to the Census Bureau 2007 estimate there are 51.6 million households with mortgages, or over 4% of households with mortgages entered foreclosure in 2008. The MBA reports that 2.97% of households with mortgages are currently in the foreclosure process.

So even though the current delinquency rate is much lower than during the Depression, it appears the foreclosure rate is higher. Wheelock also notes:

The rate of foreclosures would likely have been far higher were it not for the moratoria on (and other impediments to) foreclosure imposed by several states (Poteat, 1938), as well as the actions of the federal government to refinance delinquent mortgages ...

And once again the government is stepping in to slow foreclosures.

I think it is important to note that mortgages were very different in the Depression era. It was typical for a buyer to put 50% down, and obtain a short duration loan (like 5 years) with a balloon payment. When you lost your home to foreclosure, it was a tragedy. Today many of the foreclosures are for buyers that put little or no money down (or extracted significant equity with 2nds or HELOCs), so these foreclosures are not wiping out a life time of savings like foreclosures during the Depression. Still a tragedy for some, but not quite the same impact for many others.