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Invest cautiously in mortgages

By Judy Martel · Bankrate.com
Thursday, May 30, 2013
Posted: 6 am ET

The housing market is showing gains in home prices and new construction, but investors should be aware there are still plenty of mortgage delinquencies among loans financed by certain municipal bonds, according to a report by Moody's Investors Service.

The report, published twice a year, found that in the last six months of 2012, delinquency rates for single-family mortgage bonds issued by the Housing Finance Agency rose for the sixth straight year. Delinquency rates of 90 days or more rose to a record high of 3.2 percent.

Total delinquencies were at a record 8.03 percent, up nearly 4 percent from 2011. The lowest rate, 1.2 percent, was in December 2006.

First-timers at risk

Delinquencies are highest among first-time and moderate-income mortgage borrowers, the report says. The Housing Finance Agency issues state municipal bonds to finance mortgages for entry-level homebuyers. These buyers are particularly susceptible to unemployment and a bad economy, the report says.

Even with the rise in delinquencies, Eileen Hawes, an analyst at Moody's, told Investment News that the municipal bonds are still in good shape, with assets-to-debt ratios around the historic average of 1.2 to 1. "Delinquencies are continuing to increase, but based on asset-to-debt ratios, the programs are still healthy and sustainable," she said.

Keep up with your wealth and mortgages, and follow me on Twitter @JudyMartel.

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