In the first quarter of 2010, state housing finance agencies' (HFAs) delinquencies declined for the first time since overall performance of loans began to deteriorate in[IMAGE]
the second quarter of 2008, according to ""Standard & Poor's"":http://www.standardandpoors.com. But analysts at the credit ratings agency say the slowdown could be only temporary.
According to S&P's study, delinquency rates for HFA loans remain high with an average increase of 1.67 percent from the first quarter of 2009 to the first quarter of 2010. However, the company's analysis indicates that the overall percentage of HFA loans at least 60 days delinquent or in foreclosure decreased to 6.05 percent in Q1, down from 6.57 percent in the fourth quarter of 2009.
S&P suspects that the extension of the now-expired homebuyer tax credit may have helped minimize new defaults and slow the rate of cumulative defaults at HFAs.[COLUMN_BREAK]
The tax credit stimulus helped to stabilize property values Ã¢â‚¬" at least momentarily Ã¢â‚¬" which likely contributed to fewer delinquencies.
S&P notes that declining home prices have been a significant factor in rising delinquency rates, as homeowners either have limited options for selling their residence or refinancing their loan, or simply decide not to continue making payments on an asset that is continuing to lose value. And all market indicators point to the probability of home price declines returning now that the homebuyer tax credit has ended and home sales have nosedived.
According to David Wyss, S&P's chief economist, difficulties restructuring loans and the delays in the foreclosure process will likely lead to bringing foreclosed homes on the market for another 18 months, which will also put more pressure on home prices and lead to an increase in delinquencies for HFA portfolios.
""We expect that HFA delinquencies will likely remain high without a decrease in unemployment and economic improvement,"" S&P said in its report.
Although seasonally, housing typically performs well in the second and third quarters, S&P's credit analyst, Lawrence Witte, says he believes default rates on HFA loans will show an increase again in Q2, thanks to slower sales following the expired tax credit, a large backlog of distressed properties that haven't been marketed for sale yet, and a high unemployment rate Ã¢â‚¬" all of which will hamper home prices.