The California wildfires are expected to boost mortgage delinquencies in the months to come – this despite the fact that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have extended their moratoria allowing homeowners in impacted areas to stop making mortgage payments for up to 12 months.
During this period, homeowners will not incur late fees or have delinquencies reported to the credit bureaus. Fannie Mae servicers have other options available, such as suspending or reducing a homeowner’s payments for up to 90 days, without any contact with the homeowner, if the servicer believes the homeowner has been affected by the disaster.
The U.S. Department of Housing and Urban Development is yet to announce whether it will be providing assistance to victims, but, typically it does.
Frank Nothaft, chief economist for CoreLogic, points out that although delinquency rates have fallen to their lowest levels in 12 years, disasters such as the current California wildfires naturally tend to boost delinquencies and foreclosures.
“While the strong economy has nudged serious delinquency rates to their lowest level in 12 years, areas hit by natural disasters have had increases,” Nothaft says in a statement. “The tragic wildfires in the West will likely lead to a spike in delinquencies in hard-hit neighborhoods.
“As an example, the wildfire in Santa Rosa last year destroyed or severely damaged more than 5,000 homes,” he adds. “Delinquency rates rose in the aftermath, and in the ensuing months we observed home-price growth accelerate and sales decline. We will likely see the same scenario unfold in fire-ravaged communities this year.”
According to a recent Carr Fire analysis by CoreLogic, this wildfire season is outpacing 2017 with more than 292,000 acres burned this year thus far.
The Carr Fire outside the city of Redding and the French Gulch community presented the greatest risk to homeowners with CoreLogic estimating a total of $3.5 billion potential reconstruction costs in that area.
It will take some time before the full impact of the fires on mortgage delinquencies can be measured.
According to CoreLogic’s Loan Performance Insights Report, mortgage delinquencies continued to hover at near-record lows in May.
Nationally, only 4.2% of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure), down from 4.5% in May 2017.
As of the end of May, the foreclosure inventory rate was 0.5%, down from 0.7% in May 2017 to reach the lowest level since September 2006, when it was also 0.5%.
Early-stage delinquencies – defined as 30 to 59 days past due – represented 1.8% of all residential mortgages in May, down from 1.9% in May 2017.
Mortgages that were 60 to 89 days past due represented 0.6%, unchanged from May 2017.
The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure – was 1.8%, down from 2% in May 2017 to reach the lowest level since 2007, when it was 1.6%.