Nearly 96 percent of Utah homeowners in the second quarter paid their mortgages on time, contributing to a trend of falling foreclosure rates, according to a quarterly delinquency survey released Thursday.

Utah's foreclosure rate fell to 1.18 percent at the end of second quarter, down from 1.56 percent compared to second-quarter 2004. It was the fifth consecutive quarter Utah's foreclosure rate has dropped.

Utah's latest foreclosure rate ranked 17th-highest in the nation, an improvement over first quarter's No. 13 ranking.

Ohio had the highest foreclosure rate at 3.28 percent. California had the lowest at 0.17 percent.

Nationally, 1 percent of mortgage loans were in foreclosure for the three months ended June 30, down from 1.16 percent a year ago during the same period, according to the Mortgage Bankers Association of America.

John Norman, executive director of the Utah Mortgage Lenders Association, said Utah's falling foreclosure rate means good news for consumers and for

the mortgage lending industry. That's because Utah mortgages are typically sold by Utah lenders to other companies on the secondary market and are paid a service release premium.

"That service release premium is based on the amount of risk that company is taking on in purchasing that mortgage," Norman said. "And part of that risk is based on these rankings."

Less risky loans command a higher service premium fee, which then can be passed down to consumers in the form of lower mortgage interest rates.

Utah's delinquency rate — mortgage loans 30 days or more past due — declined to 4.25 percent in the second quarter, down from 4.65 percent compared to second-quarter 2004.

Despite the good news, higher energy prices and the effects of Hurricane Katrina could reverse the trend, according to Doug Duncan, MBA's chief economist and senior vice president.

"We expect an uptick in delinquency rates over next few quarters as the states impacted by Hurricane Katrina, especially Louisiana and Mississippi, start to exhibit that in their data," Duncan said. "In addition, we expect that higher energy costs may exacerbate delinquency rates starting in the fourth quarter."

The national delinquency survey covers 39.9 million first-lien mortgages on one-to-four-unit residential properties, making up more than 80 percent of all residential loans.

Of the loans represented in the survey, 74.5 percent were prime loans, 13.4 percent subprime, 8.9 percent FHA and 3.2 percent VA.