Black Knight: Early Stage Mortgage Delinquencies on the Rise

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Although the overall mortgage delinquency rate continues to improve, the rate of improvement has slowed, data from Black Knight shows.

In addition, early stage delinquencies have been edging up slightly during the past year or so, with purchase loans representing most of the increase.

A surprising 0.6% of originations in the first quarter were delinquent six months post-origination, according to Black Knight’s Mortgage Monitor report.

Although that is close to pre-crisis levels, this figure is up more than 60% over the past 24 months and the highest since 2010, the firm says.

The rise in early-stage delinquencies is most concentrated among first-time homeowners, who have been steadily making up a growing share of originations. Black Knight says as of the third quarter first-time home buyers accounted for about 42% of Fannie Mae/Freddie Mac loans and more than 70% of all Ginnie Mae purchase loans.

Helping to drive the increase in early-stage delinquencies among first-time homebuyers is rising debt-to-income ratios (DTIs) resulting from home affordability pressures.

The report finds that although repeat purchasers face the same affordability challenges, loan performance among this group has been steadier. This suggests that falling credit scores among first-time homebuyers may have had more impact than DTIs.

“We’ve seen early-stage delinquencies rise over the last several years, with the increase being driven primarily by purchase loans,” says Ben Graboske, president of the data and analytics division of Black Knight, in the report. “About one percent of loans originated in [the first quarter] were delinquent six months after origination. While that’s less than one-third of the 2000-2005 average of 2.95 percent, it represents a more than 60 percent increase over the last two years and is the highest it’s been since late 2010.”

Early-stage GSE delinquencies currently stand at 0.6%, up two tenths of a percentage point over the past 24 months, but still 40% below the market average and 60% below their own 2000-2005 average of 1.3%, Graboske says.

“Though there has been some softening in GSE purchase loan performance, it hasn’t been to the extent seen among entry-level buyers,” he says. “All in all, first-time homebuyer originations combined between the GSEs and GNMA increased by nearly 50 percent between 2014 and 2018.

“However, whereas first-time homebuyers represent just over 40 percent of GSE purchase loans, they make up 70 percent of the GNMA purchase market,” he says. “That concentration is contributing to a more significant increase in early-stage delinquencies among GNMA loans, which saw 3.3% of loans delinquent six months after origination. That’s up 1.2 percentage points from two years ago, and though still roughly half the 2000-2005 pre-crisis average, it represents the sharpest increase we’ve seen in the market in recent years.

“However, performance among repeat purchasers with GNMA-securitized loans has remained relatively steady overall, with the rise more pronounced among first-time homebuyers,” Graboske adds. “Rising DTIs due to tight affordability and declining first-time homebuyer credit scores stand out as likely drivers here.”

Black Knight notes that despite the rise in early stage delinquencies among first-time homebuyers, overall mortgage performance continues to improve – albeit at a slower pace.

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