The U.S. mortgage delinquency rate (30 days or more past due but not in foreclosure) was about 4.88%, on a seasonally-adjusted basis, as of the end of the third quarter, an increase of 64 basis points compared with the second quarter and an increase of 36 basis points compared with the third quarter of 2016, according to data from the Mortgage Bankers Association (MBA).
Only about 0.25% of all mortgages were subject to foreclosure starts in the third quarter, a decrease of one basis point compared with the previous quarter and a decrease of five basis points compared with one year earlier, according to the MBA’s National Delinquency Survey.
The percentage of loans in the foreclosure process – also known as the foreclosure inventory – stood at about 1.23%, a decrease of six basis points compared with the previous quarter and a decrease of 32 basis points compared with the third quarter of 2016.
The serious delinquency rate (90 days or more past due or in the process of foreclosure) stood at 2.52% of all loans, an increase of three basis points compared with the previous quarter, but a decrease of 44 basis points compared with a year earlier.
In a statement, Marina Walsh, vice president of industry analysis for the MBA, says the uptick in mortgage delinquencies was due in part to the impact from hurricanes Harvey, Irma and Maria, which “caused disruptions and destruction in numerous states.”
“Florida, Texas [and] neighboring states, as well as devastated Puerto Rico, saw substantial increases in their past-due rates,” Walsh says. “While forbearance is in place for many borrowers affected by these storms, our survey asks servicers to report these loans as delinquent if the payment was not made based on the original terms of the mortgage regardless of any forbearance plans in place.”
Walsh says mortgage delinquencies increased across all loan types – Federal Housing Administration (FHA), Veterans Affairs (VA) and conventional.
“The FHA delinquency rate increased to 9.4 percent from 7.94 percent in the second quarter, a 146-basis-point increase and the highest quarter-over-quarter increase reported in the history of our survey,” she says. “The VA delinquency rate increased 52 basis points to 4.24 percent from 3.72 percent in the second quarter. The conventional delinquency rate increased 50 basis points to 3.97 percent from 3.47 percent in the second quarter.”
Walsh says although the storms certainly had an effect, there were other factors that helped boost delinquencies – as evidenced by the fact that rates increased in certain states that were not affected by the storms.
“First, there were timing issues associated with the last day of the month being a Saturday,” Walsh explains. “Processing for mortgage payments made over the weekend did not occur until Monday, Oct. 2 and, thus, these mortgage payments were identified as 30 days delinquent per NDS definitions.
“Second, delinquency rates were already at historic lows in the second quarter of 2017,” she adds. “The FHA and VA delinquency rates were at their lowest levels since 1996 and 1979, respectively, while the conventional delinquency rate reached its lowest level since 2005. It would not be unexpected for delinquencies to eventually increase from these levels.”
Other factors to consider include seasonality, rising loan-to-value and debt-to-income ratios for certain product types, normal loan aging, and declining average credit scores on new FHA endorsements since 2014, as the agency has withdrawn from its counter-cyclical role during the crisis, she says.
“Most of the major variances from the second to third quarter of 2017 are tied to early delinquencies for all loan types,” Walsh says. “In the third quarter of 2017, there was little movement in the seriously delinquent rate, which rose just three basis points and was down 44 basis points from a year ago. Foreclosure starts were down one basis point from the previous quarter. In future surveys, we may see a temporary drop in foreclosure starts in hurricane-impacted states due to storm-related foreclosure moratoria, as was seen during Hurricane Katrina in 2005.”
Walsh says it will likely take three or four more quarters for the effects of the most recent hurricanes on the survey results to dissipate.
“That said, we see loan performance as still healthy and strong, supported by a positive employment and wage outlook,” she concludes. “Thus far in 2017, job growth is averaging 169,000 jobs per month, the unemployment rate has decreased from 4.8 to 4.1 percent, and wage growth is 3.8 percent on a year over year basis.”
