According to a Mortgage Bankers Association (MBA) national delinquency survey, the delinquency rates for prime, subprime, Federal Housing Administration (FHA), and Veteran Affairs (VA) loans all increased in the fourth quarter of 2006. The report also reveals that subprime delinquencies are at a four-year high at 13.33 percent, foreclosures on all homes are at a four-decade peak, and FHA loan delinquency has hit record levels.

The MBA report is based on a survey of 43.5 million loans by mortgage companies, commercial banks, thrifts, credit unions, and other financial institutions. The report's ripple effect was felt on Wall Street Tuesday as the Dow Jones industrial average dropped 2 percent (243 points) and again on Wednesday with the Dow temporarily dipping below 12,000.

The survey results coincide with the news that subprime lenders New Century Financial Corp. and Accredited Home Lenders Holding Co. are facing serious financial problems. New Century, under a Securities and Exchange Commission investigation, was delisted by the New York Stock Exchange Tuesday. And according to a recent article in the Baltimore Sun, Accredited Home Lenders is in the process of downsizing and looking at "strategic options."

"As we had expected, in the fourth quarter, delinquency rates again increased across the board," says Doug Duncan, MBA's chief economist. "Increases in delinquency and foreclosure rates were noticeably larger for subprime loans.

"Subprime borrowers are more likely to be susceptible to the cumulative increases in interest rates that we have experienced and the resultant nationwide slowing of home price appreciation including outright declines in some markets," he continues. "The significant increases in delinquency rates has in some cases led to unexpected increases in credit losses and the failures of some subprime specialist firms."

Despite the reports of the increased rates, Duncan predicts that the numbers will eventually move toward stability.

"Given our macroeconomic forecast of below trend economic growth and a slowly recovering housing market, we would expect delinquency and foreclosure rates to level off as the housing market regains its footing towards the end of 2007," Duncan adds.

Learn more about markets featured in this article: Baltimore, MD.