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Volume 3

Issue 3

November 1999

THE RISKS OF RISING INTEREST RATES

Research & Analysis

Office of Thrift Supervision

Washington, DC
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 1 November 1999

INTRODUCTION•

Mortgage interest rates have risen sharply since their seven-year low last October.

This rapid rise in rates has created a series of challenges to those who serve the

mortgage market. As rates rise, refinancing and home purchase mortgage demand

tends to fall, as new mortgages are now more expensive for borrowers. Falling

demand squeezes an industry that had just ramped up to meet 1998’s record demand for $1.44 trillion worth of mortgages. Layoffs and lower underwriting standards are just two of the ways squeezed mortgage originators can respond to a

tighter market. The Mortgage Bankers Association, for example, predicts that

75,000 jobs in the industry will be lost over the next twelve months. The mortgage industry experienced a similar reduction in demand in 1995 due to rising

rates following a refinancing boom. Mortgages originated during that squeeze

have performed poorly, suggesting that underwriting standards were lowered in

an effort to maintain volume. While it is too early to tell for this year’s cohort,

the recent decline in origination activity suggests that another squeeze is underway.

Rising interest rates also make adjustable-rate mortgages (ARMs) a more attractive alternative to fixed-rate mortgages (FRMs) for borrowers. Product demand

will now favor ARM originators, such as thrifts, over those who specialize more

in FRMs, such as mortgage bankers.

Rising short-term interest rates trigger increases in adjustable-rate mortgage rates

as the ARMs reprice. Higher mortgage interest rates result in higher monthly

payments. This puts additional pressure on borrowers, making delayed mortgage

payments or defaults more likely.

In addition to examining the effects of rising interest rates, we will briefly cover

one other mortgage market development in this issue. The Mortgage Partnership

Finance plan sponsored by the Federal Home Loan Bank of Chicago posed an

interesting issue concerning the appropriate capital treatment of second-dollar

credit loss guarantees issued by the participating banks or thrifts.1 OTS and the

other banking agencies have recently issued a letter detailing the conditions under

which such guarantees would be afforded lowered capital requirements. The directive given by the agencies signals a heavier reliance on a credit-ratings approach in setting capital standards and gives some indication as to the agencies’

current thinking about risk-based capital requirements. But before we get started,

let’s look at the mortgage market conditions over the first half of 1999, as this issue will cover two quarters rather than just one.

 

• Prepared by Fred Phillips-Patrick, Jonathan Jones, and John LaRocca, Research & Analysis Directorate, Office of Thrift Supervision. Please email any comments or questions to

fred.patrick@ots.treas.gov.

1

See Mortgage Market Trends, Volume 3, Issue 1, for a discussion of the program.
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 2 November 1999

CURRENT MORTGAGE MARKET CONDITIONS

National Delinquency Rates Decline Even Further

igure 1 plots the percentage of seriously delinquent (90 days past-due or in

foreclosure) residential mortgages, using both the Mortgage Information

Corporation (MIC) and Thrift Financial Report (TFR) data. The MIC data

comprise almost 24 million mortgages. Since the first issue of the Mortgage Market

Trends, we have divided the MIC data into two groups: the market, which includes all MIC participants (Freddie Mac, Fannie Mae, and eighteen other large

banks, thrifts, and private mortgage lenders), and a subgroup, depository institutions, which includes only the FDIC-insured MIC participants (a mix of S&Ls

and commercial banks). As the trend line in Figure 1 shows, the national delinquency rates have fallen since the end of 1998, with especially sharp declines in

the second quarter of 1999. The OTS-regulated (TFR) thrift delinquency rates

continued to decline, a trend that started in March 1996.

Figure 1 also shows that depositories, as a group, have had a higher delinquency

rate than the national average for the entire period. The gap between the depository and the market delinquency rates has remained fairly constant since June

1997. The thrift industry, though, has improved its performance so much over

the last few quarters that its delinquency rate has dropped below the MIC national rate (which is dominated by the GSEs’ portfolio of conforming mortgages)

for the last six consecutive quarters.

Figure 1: Percentage of Seriously Delinquent Mortgages

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99

Depositories

TFR

Market

Source: MIC and TFR. The Market contains the combined data of the depository and nondepository participants in MIC’s Loan Performance System. Depositories comprise both bank and

thrift MIC participants. The thrift MIC participants are very large institutions located primarily

on the East and West coasts. TFR represents all OTS-regulated institutions except one that specializes in defaulted mortgages.

Figure 2 shows the regional detail behind the improvement of the overall OTS

delinquency rate. The Northeast and West regions continued to improve, and for

the first time since we’ve been tracking the data the Northeast has the lowest rate

F
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 3 November 1999

of seriously delinquent mortgages among all five regions. The Midwest region’s

performance deteriorated over the last two quarters, going from best performance to the worst. All regions have very low rates, however. Moreover, the reduction in regional disparities is beneficial from a supervisory perspective.

Figure 2: OTS Regional Delinquency Rates

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99

National N E SE Central Midwest West

Hawaii, Maryland, and DC have highest delinquency rates

n June 1999, according to the MIC data, the states with the highest rates of

seriously delinquent loans (by dollar value) were Hawaii (1.73%), Maryland

(1.57%), District of Columbia (1.49%), New Jersey (1.29%), New York

(1.28%). The national average was 0.74%. California, which has previously drawn

national attention because of its poor performance, had a rate of 0.73%, below

the national average. Iowa (0.21%) and Nebraska (0.19%) had the lowest rates.

In individual markets, Memphis, TN, with a seriously delinquent rate of 1.89%,

led the nation. It was followed by Scranton, PA (1.85%), and Riverside, CA

(1.83%). Among major markets, Miami was fifth worst, with a rate of 1.63%.

New York was twelfth with a rate of 1.31%. San Francisco, with a rate of 0.16%,

had the lowest seriously delinquent rate in the nation.

Table 1 shows the percentage

of mortgages that are seriously

delinquent for different product types (conventional and

government-backed, fixed rate

and adjustable) based on

whether the mortgages were

made for purchase or for refinancing. These data show that

fixed rate mortgages outperform adjustable rate mortI

Table 1: Percent Seriously Delinquent, as of 6/99

Home Purchase Refinancing

Conv: Fixed Rate 0.48 0.19

 15-Yr Fixed 0.16 0.08

 30-Yr Fixed 0.53 0.25

Conv: Adj Rate 0.92 0.69

 T-Bill 0.86 0.59

 COFI 1.02 1.07

Government 3.17 1.43

 FHA 3.40 1.29

 VA 2.72 1.62

All Loans 0.95 0.31

Source: MIC, based on $ amounts
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 4 November 1999

gages; fifteen-year fixed rate mortgages outperform thirty-year mortgages. Refinanced mortgages perform much better than home purchase mortgages in all

cases except one, COFI ARMs, where the refinanced mortgages have a slightly

higher delinquency rate than COFI ARM home purchase loans. Delinquency

rates on government-backed loans substantially exceed those on conventional

loans. For home purchase mortgages, government-backed loans have a seriously

delinquent rate five times higher than that for thirty-year conventional loans (3.17

vs. 0.53); for refinancing loans, the rate is also five times higher (1.43 vs. 0.25).

INTEREST RATES RISE RAPIDLY

nterest rates have risen quickly and sharply since their seven-year lows

reached last October. Figure 3 depicts the movement of key interest rates

since January 1996.

The 1 year constant maturity Treasury rate (1 Yr CMT) is frequently used as an

index for adjustable rate mortgages. The 10 year constant maturity Treasury rate

(10 Yr CMT) serves as an overall risk-free reference rate for longer-term contracts. The FHLMC 30-day commitment rate for thirty-year fixed rate conforming mortgages provides a commonly used mortgage rate benchmark.

During the period

July through October last year domestic and worldwide

events prompted a

flight to safety that

drove down Treasury rates sharply.

Mortgage rates also

fell but not nearly as

much. Thus, the

spread between

Treasury rates and

mortgage rates widened in the third

quarter, even as mortgage rates declined. The rates rose in November, declined

slightly in December, but have climbed sharply since then.

Last year’s rapid decline in interest rates prompted many to refinance into fixed

rate mortgages, especially in the second half of the 1998. But since the beginning

of this year, the rapid rise in rates, especially long rates, have made adjustable-rate

mortgages much more attractive. The 10-year CMT has increased 137 basis

points from its October low. The FLHMC 30-day commitment rate for 30-year

mortgages has also risen 84 basis points, from 6.71% at the end of October to

7.55% at the end of June. The spread between the 1-year CMT and 10-year CMT

rates, which during much of 1998 was extremely narrow, has widened to more

normal proportions during the first half of 1999. As a result, ARMs have become

I

Figure 3: Interest Rates Since July 1996

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

Jul-96 Oct96Jan97Apr97Jul-97 Oct97Jan98Jun98Sep98Dec98Mar99Jun99

30 Yr Mortgage

10 Yr CMT

1 Yr CMT
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 5 November 1999

much more popular, as can be seen in their market share of originations detailed

in the next section.

Interest Rate Rise Prompts ARM Resurgence

he Federal Housing Finance Board conducts its Mortgage Interest Rate Survey

(MIRS) monthly among mortgage lenders on the interest rates and terms

of their recently closed conventional (non-government-backed) mortgages. Table 2 reports these survey results for the months ending each

quarter over the last eighteen months.

Table 2 shows that, for all three lender groups, effective mortgage interest rates

(which include the amortization of initial fees and charges over a ten-year period)

have risen sharply since the forth quarter of 1998. For S&Ls, the current average

is 6.75%, for commercial

banks, 7.26%, and for

mortgage companies,

7.39%. The average effective interest rate was

substantially lower for

S&Ls than that for the

commercial banks and

mortgage companies in

every quarter surveyed.

The widening difference

between the 1-year and

10-year interest rates

over the first half of

1999 affected ARM

originations. S&Ls have

traditionally originated a

higher proportion of

ARMs than either commercial banks or mortgage banks, and this

pattern persists. While

more than half of S&Ls

originations are typically

ARMs, the ARM percentage had fallen to just 31% in December, but as of June 1999, it had rebounded to 52%. At commercial banks, the increase in ARM originations has

been even more dramatic, tripling from 8% at yearend to 24% at the end of June.

Mortgage companies’ ARM originations almost doubled from 5% at yearend to

9% now.

The distribution of originations by loan-to-value ratios likely affected differences

in the effective interest rates between S&Ls and commercial banks and mortgage

companies. Over the last year and a half, S&Ls have originated a much smaller

percentage of their loans in the highest LTV category (greater than 90% LTV ratio) than the other two originators. Over the second quarter of 1999, commercial

T

Table 2: Mortgage Rates and Terms

(Conventional Home Purchase Mortgages)

Effective Rate Percent of Loans by LTV Class % Arms

< 70 70-80 80-90 >90

S&Ls 90%

Dec-97 7.05 25 48 13 14 45

Mar-98 6.96 24 46 14 16 36

Jun-98 6.90 25 47 13 15 39

Sep-98 6.72 26 47 12 15 35

Dec-98 6.61 30 43 12 14 31

Mar-99 6.70 27 45 14 15 40

Jun-99 6.75 25 46 15 14 52

Commercial Banks

Dec-97 7.46 18 32 16 35 9

Mar-98 7.22 15 34 16 36 9

Jun-98 7.21 15 31 14 40 9

Sep-98 7.01 17 34 17 33 7

Dec-98 6.96 15 38 16 30 8

Mar-99 7.09 17 35 13 34 9

Jun-99 7.26 22 41 14 22 24

Mortgage Companies

Dec-97 7.51 19 36 17 27 8

Mar-98 7.28 20 37 17 27 6

Jun-98 7.29 19 37 16 28 7

Sep-98 7.11 19 36 16 28 4

Dec-98 7.00 20 38 16 26 4

Mar-99 7.07 21 39 15 25 5

Jun-99 7.39 19 40 15 26 9

Source: Mortgage Interest Rate Survey, Federal Housing Finance Board
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 6 November 1999

banks originated a lower percentage of high LTV loans, dropping from 34% in

March to only 22% in June. Both the higher proportion of ARMs and the lower

proportions of higher LTV loans help explain the lower effective mortgage interest rates seen here.

ARM Delinquencies Rise as Rates Reset

ecent increases in interest rates have brought about a sharp decline in the

refinancing of residential mortgages. The flat and relatively low yield

curves that prevailed during much of 1998 generated enormous refinancing activity, characterized by homeowners switching from ARMs into 30-

year fixed-rate mortgages. As the 30-year mortgage rate has increased during recent months, adjustable-rate mortgage originations have increased and fixed-rate

originations have fallen off sharply.

Financial institutions can lower their interest rate risk exposure by holding more

ARMs in their portfolios. However, on the negative side, greater holdings of

ARMs expose institutions to greater credit risk because delinquency rates are

typically higher for adjustable-rate mortgages, especially as interest rates rise and

ARMs reset at higher rates.

Recent trends in delinquency rates show a rise in ARM delinquencies, even while

FRM delinquencies have fallen. Table 3 reports the spread in market and depository seriously delinquent rates between fixedand variable-rate mortgages

over the last year using the

MIC database. Between

June 1998 and June 1999,

the delinquency rate for

fixed-rate mortgages has

fallen for both the market

and depositories. Over the

same period, the delinquency rates for ARMs

have risen. Thus, the gap

between the delinquency

rates on fixed- and adjustable-rate mortgages widened substantially for both

groups of originators. The increasing gap between FRM and ARM delinquency

rates is consistent with the effect of upward shocks in interest rates as coupons

on adjustable-rate mortgages are reset, driving monthly mortgage payments upward. It is also consistent with deterioration in the credit quality of the remaining

ARM portfolio, as many ARM borrowers who could qualify for a fixed-rate

mortgage would have refinanced when FRM rates were so low in 1998.

R

Table 3: Spread Between Seriously Delinquency Rates of

Variable-Rate Mortgages and Fixed-Rate Mortgages

Jun-98 Dec-98 Mar-99 Jun-99

Spread

Market 0.78 1.07 1.13 1.07

Depositories 0.18 0.40 0.46 0.48

Level

MarketFRM

ARM

0.88

1.66

0.85

1.92

0.82

1.95

0.74

1.81

Deposit. FRM

ARM

1.40

1.58

1.39

1.79

1..36

1.82

1.20

1.68

*Percentages based on number of loans.
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 7 November 1999

Table 4: Seriously Delinquent Rates for High LTV

Mortgages (Fixed-Rate Mortgages Only)

December 1997 June 1999

91-95 96-105 91-95 96-105

Market 1.31 3.19 1.23 2.76

Depositories 1.69 3.20 1.71 3.01

*Percentages based on number of loans.

Table 4 reports seriously delinquent rates for adjustable-rate mortgages for highLTV categories. Delinquencies rise dramatically as the loan-to-value ratio goes

up. Recently, savings association and banking regulators issued supervisory guidance recommending caution in the origination and holding of high-LTV and

subprime loans, in part

because of the particularly

high delinquency rates

when LTVs exceed 95%.

The results reported in

Table 4 show both the

impact of rising ARM reset

rates and ARM pool credit

deterioration, as those

borrowers who could

qualify for refinancing often did so into fixed-rate mortgages, leaving behind a

greater concentration of poorer quality ARM loans. Delinquencies on high-LTV

adjustable-rate mortgages increased substantially between December 1997 and

June 1999. These results support the notion that risk factors compound, rather

than just add. These results also strongly suggest that institutions should carefully

consider the trade-off between interest rate risk and credit risk when deciding

whether or not to hold high-LTV ARM mortgages in portfolio.

Table 5 shows the seriously delinquent rate for fixed-rate mortgages over the

same time period. As can be seen, the seriously delinquent rate either declined

(for those mortgages in the 96-105% LTV range) or stayed about the same (for

the mortgages in the 91-95% LTV range) over the refi and recent interest rate

rise period. This improvement reflects, in part, the

infusion of recently underwritten and refinanced

fixed-rate mortgages. It

should also be noted that

almost all first time home

buyer “affordable housing”

programs, such as those of

Fannie Mae and the

Neighborhood Housing

Services affiliates of the Neighborhood Reinvestment Corporation, involve only

fixed-rate loans, which these two tables show pose substantially less risk than adjustable-rate loans in the current environment.

Interest Rate Risk Increases

ast year’s mortgage refinancing activity brought about a dramatic change in

the asset portfolio composition of thrifts. Homeowners switched from

adjustable-rate mortgages into longer-term fixed-rate mortgages, especially

30-year mortgages, to take advantage of last year’s historically low 30-year

mortgage rates. As a result, thrifts now hold proportionately more 30-year fixedrate mortgages in their portfolios. This makes thrifts more sensitive to interest

L

Table 5: Seriously Delinquent Rates for High LTV

Mortgages (Variable-Rate Mortgages Only)

December 1997 June 1999

91-95 96-105 91-95 96-105

Market 2.01 4.09 2.66 5.95

Depositories 2.08 4.27 2.74 6.14

*Percentages based on number of loans.
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 8 November 1999

rate increases. The June 1999 issue of the Quarterly Review of Interest Rate Risk2

shows that the change in sensitivity and the type of mortgage portfolio holdings

are closely related. Those thrifts with the largest sensitivity increase between the

first and second quarters of this year also held substantially greater proportions

of their assets in long-term 30-year fixed-rate mortgages and mortgage-backed

securities.

Median sensitivity for the thrift industry rose almost 28 percent between the first

and second quarters of this year. This substantial increase continues a significant

upward trend in the industry’s aggregate sensitivity for the third consecutive

quarter. The median sensitivity had been steadily declining since it last peaked at

201 basis points in March 1997. The second-quarter level of 182 basis points for

sensitivity places it at about the same levels that prevailed in June 1996 and December 1994.

These aggregate results for the second quarter on the surface do not appear to be

of immediate supervisory concern when viewed historically. However, the number of thrifts with a very high sensitivity measure almost doubled to 73 in the

second quarter. Among these are 21 of the largest thrifts, each with assets that

exceed $1 billion. The number of thrifts with post-shock net portfolio values ratios (a measure of interest rate exposure) below 4 percent rose to 25, up from 13

in each of the previous two quarters.

Based on guidance provided in Thrift Bulletin 13a, the number of thrifts that

might initially be considered to bear “significant” or “high” interest rate risk increased from 71 thrifts (8.6 percent) at the end of the first quarter to 119 thrifts

(11.8 percent) by the end of the second quarter. This rise in interest rate risk

among thrifts makes capital adequacy a supervisory concern.

Thrifts have several means of managing interest rate risk. The recent shift in

product demand towards ARMs will naturally tend to reduce interest rate risk as

ARMs are added to portfolios. Innovations such as the Chicago Federal Home

Loan Bank’s Mortgage Partnership Finance (MPF) plan offers thrifts an opportunity to shift interest rate risk to the Chicago FHLB, while retaining a portion of

the mortgage’s credit risk. The MPF raised some interesting capital issues, which

the banking agencies recently addressed. This is the subject of the next section.

MPF CAPITAL REQUIREMENTS

In July 1999, the banking agencies released additional guidance on the risk-based

capital treatment of the credit enhancement provided by banks and thrifts participating in the Federal Home Loan Bank of Chicago’s (FHLB-C) Mortgage

Partnership Finance (MPF) program. Under the MPF program, a participating financial institution (PFI) acts as an agent for FHLB-C, underwriting, servicing,

and providing a second-dollar loss credit enhancement for residential mortgages,

for which it receives fees. Under the plan, interest rate risk is transferred to the

Chicago FHLB. Regulators are concerned about the credit risk of the credit en-

 

2

 Available online at www.ots.treas.gov
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 9 November 1999

hancement supplied by the insured bank or thrift, and what the appropriate

amount of risk-based capital should be.

The structure of the MPF plan requires the Chicago Federal Home Loan Bank to

provide a first-dollar loss protection cushion equal to 100 basis points of the total

mortgage pool’s initial unpaid balance. The PFI provides a second-dollar loss enhancement that varies with the credit quality of the mortgage pool supplied by

the PFI. It is sized so that the senior piece held by the Chicago Federal Home

Loan Bank would have the credit quality equivalent to a bond “AA” rating. With

a good quality mortgage pool, the second-dollar loss position would generally not

exceed three percent of the original unpaid balance of the mortgage pool.

With the 100 basis point first-dollar loss position protecting it, what would be the

credit risk of the enhancement supplied by the bank or thrift? Using an approach

similar to that used by the rating agencies, the credit risk of the enhancement was

analyzed as if it were a mezzanine tranche in a securitization structure. In other

words, the enhancement was analyzed as if it were a separate security that represented a claim on the cash flows of the mortgage pool, junior to the senior piece

held by the Chicago Federal Home Loan Bank, but senior to the 100 basis point

cushion provided by the Bank. Analysis showed that for most pools the enhancement would garner at least the equivalent of a “BB” rating, and for many

pools, a “BBB” rating.

Given that the enhancement would be rated investment grade for many of the

pools, the banking regulators determined that the enhancement could be treated

for capital purposes similar to other investment-grade assets, that is, placed in the

100 percent risk bucket and assessed 8% capital. The banking agencies notified

the Chicago Federal Home Loan bank that the enhancement would be treated

for risk-based capital purposes as a direct credit substitute. As such, a financial institution would be required to use a 100 percent conversion factor to convert the

face amount of the enhancement to an on-balance sheet credit equivalent

amount, which then would be assessed 8% capital. The PFI’s enhancement

would not be treated as recourse and thus be subject to a capital requirement

based on the size of the asset pool that it supports. Rather, the enhancement

would be treated as a direct credit substitute, such as a standby letter of credit,

and its capital requirements would thus be based only on the enhancement’s face

value and not the size of the asset pool it supports. This approach looks to the

actual credit risk of the position, rather than to the position of the enhancement

in the securitization structure.

CONCLUSION

ising interest rates can have powerful effects on an industry such as ours.

Product demand can change rapidly; it now favors ARM originators.

Overall product demand can fall, challenging originators to maintain volume without sacrificing quality. The huge 1998 refinanced cohort held by

thrifts, predominately 30-year fixed rate mortgages, now has less value because of

the rise in interest rates. Moreover, these mortgages are less likely to prepay. As

ARMs are reset at currently higher rates, defaults and delinquencies become more

R
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 10 November 1999

likely. But innovative products and programs, such as the MPF, offer new ways

to separate and manage interest rate risk and credit risk. Such is the staid world of

mortgage lending.
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 11 November 1999

Mortgage Market Trends

Volume 3 Issue 3

November 1999

Data Appendix

National and Regional Trends in Mortgage Delinquency Rates

For the Quarter ending:

March 31, 1999
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 12 November 1999

Regional and State Analysis

Seriously Delinquent & Home Price Appreciation Rates as of 3/31/99

(Based on $)

MIC SD TFR SD Home Price Appreciation

Market Depositories TFR 1-Year 5-Year

National 0.83 1.17 0.77 4.8 20.7

Northeast 1.06 1.54 0.72

Connecticut 0.81 1.00 0.49 4.33 8.62

Delaware 0.86 1.55 0.47 3.47 8.89

Maine 0.65 1.15 0.77 4.84 13.20

Massachusetts 0.47 0.67 0.36 8.47 23.73

New Hampshire 0.40 0.71 0.53 7.46 18.11

New Jersey 1.42 2.23 1.13 4.22 10.43

New York 1.42 1.79 0.62 5.31 10.81

Pennsylvania 1.02 1.70 0.87 3.12 10.75

Rhode Island 0.65 0.88 1.22 3.03 5.89

Vermont 0.37 0.77 1.05 2.36 7.97

West Virginia 0.62 1.92 1.06 4.19 23.41

Southeast 1.03 1.54 0.86

Alabama 0.70 1.62 1.01 4.25 24.05

DC 1.60 2.00 2.81 4.43 6.58

Florida 1.20 1.51 0.70 4.00 17.48

Georgia 0.85 1.38 0.76 6.50 28.16

Maryland 1.73 2.56 2.50 2.59 7.72

North Carolina 0.61 1.04 0.43 4.41 27.95

Puerto Rico 0.72 2.07

South Carolina 0.67 1.18 0.48 6.02 25.98

Virginia 0.76 1.14 0.39 3.34 11.64

Central 0.62 1.28 0.77

Illinois 0.87 1.38 0.79 3.59 19.15

Indiana 0.72 1.61 0.95 4.35 26.40

Kentucky 0.50 1.07 0.89 4.99 27.20

Michigan 0.24 0.54 1.07 6.51 41.16

Ohio 0.65 1.34 0.59 4.93 26.78

Tennessee 0.97 1.97 0.70 4.82 30.45

Wisconsin 0.28 0.68 0.29 4.79 29.82

Midwest 0.57 0.96 0.75

Arkansas 0.94 1.65 1.87 3.37 21.45

Colorado 0.33 0.52 0.13 6.57 39.98

Iowa 0.24 0.39 0.38 5.09 27.43

Kansas 0.46 0.82 0.31 5.46 29.27

Louisiana 0.97 1.70 0.32 4.85 27.90

Minnesota 0.32 0.50 0.28 6.07 30.18

Mississippi 0.74 2.21 0.84 4.75 25.58

Missouri 0.47 0.86 0.42 4.66 24.68

Nebraska 0.23 0.31 0.70 4.15 29.87

New Mexico 0.78 1.15 0.83 2.80 21.95

North Dakota 0.34 0.51 0.34 3.16 23.62

Oklahoma 0.75 1.29 0.24 4.89 22.12

South Dakota 0.39 0.60 0.53 3.30 24.62

Texas 0.76 1.20 1.25 4.18 15.41

West 0.80 0.88 0.78

Alaska 0.46 1.21 0.00 3.68 19.88

Arizona 0.57 0.77 0.53 5.29 29.05

California 0.85 0.91 0.86 8.62 12.53

Hawaii 1.85 2.67 1.72 -0.19 -11.31

Idaho 0.68 0.85 0.17 2.91 24.10

Montana 0.63 1.25 0.31 2.41 28.05

Nevada 1.23 1.40 1.89 2.17 14.96

Oregon 0.38 0.38 0.21 3.36 41.13

Utah 0.70 1.01 1.06 4.06 49.23

Washington 0.55 0.55 0.25 6.41 25.71

Wyoming 0.41 0.64 0.53 1.38 27.17
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 13 November 1999

OTS Regions

Seriously Delinquent Mortgages (%)

Based on Thrift TFR Data by Location of Headquarters

Percent Home Price Appreciation

1998Q1 to 1999Q1

 (Source: OFHEO Resale Database)

6.85 to 8.62 (3)

5.09 to 6.85 (10)

3.33 to 5.09 (26)

1.57 to 3.33 (10)

-0 .19 to 1.57 (2)

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

Mar-95 Sep-95 Mar-96 Sep-96 Mar-97 Sep-97 Mar-98 Sep-98 Mar-99

National NE SE Central Midwest West
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 14 November 1999

National Cohort Performance by Quarter of Origination

(Source: MIC, Percent Seriously Delinquent after 24 Months, All Loans)

Home Purchase vs. Refinancing Mortgages

(Source: MIC, Percent Seriously Delinquent, All Loans)

Fixed Vs. Variable Rate Mortgages

(Source: MIC, Percent Seriously Delinquent, All Loans)

0

0 .2

0 .4

0 .6

0 .8

1

1 .2

1 .4

1 .6

Mar-94 Sep-94 Mar-95 Sep-95 Mar-96 Sep-96 Mar-97

O rigi nation Quarter

0

0 .2

0 .4

0 .6

0 .8

1

1 .2

1991 1992 1993 1994 1995 1996 1997 1998 1999Q1

Purchase

R e financ in g

0

0 .5

1

1 .5

2

2 .5

1991 1992 1993 1994 1995 1996 1997 1998 1999Q1

V a ria b le

F ixed
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 15 November 1999

Mortgage Market Trends

Volume 3 Issue 3

November 1999

Data Appendix

National and Regional Trends in Mortgage Delinquency Rates

For the Quarter ending:

June 30, 1999
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 16 November 1999

Regional and State Analysis

Seriously Delinquent & Home Price Appreciation Rates as of 6/30/99

(Based on $)

MIC SD TFR SD Home Price Appreciation

Market Depositories TFR 1-Year 5-Year

National 0.74 1.03 0.71 5.3 21.9

Northeast 0.96 1.38 0.65

Connecticut 0.74 0.96 0.47 5.08 11.56

Delaware 0.82 1.44 0.51 3.46 10.73

Maine 0.62 0.99 0.81 5.95 18.12

Massachusetts 0.40 0.56 0.36 9.35 28.82

New Hampshire 0.30 0.47 0.47 8.11 22.90

New Jersey 1.29 2.05 1.11 4.66 12.77

New York 1.28 1.59 0.59 5.46 13.23

Pennsylvania 0.95 1.54 0.66 2.88 11.11

Rhode Island 0.57 0.75 1.39 3.86 9.65

Vermont 0.33 0.68 0.76 4.24 9.85

West Virginia 0.53 1.60 0.98 3.25 22.51

Southeast 0.93 1.39 0.79

Alabama 0.62 1.44 1.04 3.11 22.54

DC 1.49 1.84 2.91 8.34 16.11

Florida 1.09 1.37 0.65 3.74 18.27

Georgia 0.76 1.22 0.82 6.85 29.80

Maryland 1.57 2.33 2.31 3.18 9.46

North Carolina 0.54 0.97 0.39 4.56 27.09

Puerto Rico 0.67 8.79

South Carolina 0.61 1.04 0.44 5.87 26.64

Virginia 0.66 0.98 0.32 3.66 12.88

Central 0.58 1.08 0.73

Illinois 0.82 1.16 0.73 4.00 18.62

Indiana 0.69 1.28 0.84 4.16 25.47

Kentucky 0.47 0.97 0.86 4.74 25.47

Michigan 0.22 0.40 1.06 6.54 41.40

Ohio 0.62 1.28 0.56 5.28 26.13

Tennessee 0.88 1.82 0.73 4.12 28.66

Wisconsin 0.27 0.60 0.30 5.28 26.84

Midwest 0.50 0.85 0.82

Arkansas 0.84 1.46 4.61 3.58 19.90

Colorado 0.29 0.45 0.14 8.02 37.39

Iowa 0.21 0.33 0.34 4.46 25.13

Kansas 0.40 0.68 0.28 5.65 27.41

Louisiana 0.90 1.57 0.33 4.45 25.83

Minnesota 0.28 0.43 0.27 8.08 31.09

Mississippi 0.67 1.95 1.24 5.11 27.07

Missouri 0.40 0.71 0.38 5.29 23.94

Nebraska 0.19 0.26 0.69 5.38 28.03

New Mexico 0.76 1.07 0.74 3.49 19.30

North Dakota 0.28 0.47 0.39 3.64 20.22

Oklahoma 0.68 1.17 0.17 3.64 19.43

South Dakota 0.40 0.63 0.38 4.90 24.58

Texas 0.68 1.08 1.24 5.03 16.76

West 0.70 0.76 0.67

Alaska 0.40 0.87 0.05 4.57 20.22

Arizona 0.51 0.67 0.48 4.93 28.42

California 0.73 0.77 0.74 7.68 17.19

Hawaii 1.73 2.51 1.68 0.10 -10.54

Idaho 0.63 0.76 0.07 3.05 19.77

Montana 0.58 1.10 0.32 5.04 25.71

Nevada 1.11 1.24 1.06 1.58 13.95

Oregon 0.36 0.36 0.19 3.59 37.17

Utah 0.64 0.88 1.15 3.29 41.45

Washington 0.50 0.50 0.23 6.10 25.84

Wyoming 0.40 0.57 0.26 3.88 26.84
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 17 November 1999

OTS Regions

Seriously Delinquent Mortgages (%)

Based on Thrift TFR Data by Location of Headquarters

Percent Home Price Appreciation

1998Q2 to 1999Q2

 (Source: OFHEO Resale Database)

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99

National N E S E Central Midwest West

7.5 to 9.35 (6)

5.65 to 7.5 (6)

3.8 to 5.65 (23)

1.95 to 3.8 (14)

0.1 to 1.95 (2)
Mortgage Market Trends Volume 3 Issue 3

Research & Analysis 18 November 1999

National Cohort Performance by Quarter of Origination

(Source: MIC, Percent Seriously Delinquent after 24 Months, All Loans)

Home Purchase vs. Refinancing Mortgages

(Source: MIC, Percent Seriously Delinquent, All Loans)

Fixed Vs. Variable Rate Mortgages

(Source: MIC, Percent Seriously Delinquent, All Loans)

0

0 . 2

0 . 4

0 . 6

0 . 8

1

1 . 2

1 . 4

1 . 6

Jun -94 D ec-94 Jun -95 D ec-95 Jun -96 D ec-96 Jun -97

O r i g i n a t i on Qua r t e r

0

0 . 2

0 . 4

0 . 6

0 . 8

1

1 . 2

1991 1992 1993 1994 1995 1996 1997 1998 1999Q1 1999Q2

P u rchase

R e f i nanc in g

0

0.5

1

1.5

2

2.5

1991 1992 1993 1994 1995 1996 1997 1998 1999Q1 1999Q2

Variable

Fixed