Late-stage defaults are on the rise, especially those on FHA loans
Like the Black Knight report earlier today, the Mortgage Bankers Association’s Second Quarter National Delinquency Survey shows that the the effects of the COVID-19 pandemic are fading a bit in the first delinquency figures, but increasing in the more serious non-current categories.
The overall rate for loans past due 30 days or more increased in the second quarter to 8.22%, seasonally adjusted, of all outstanding one to four home mortgages. This is an increase of 386 basis points (bps) from the first quarter of the year and 369 bps year-on-year. MBA includes forbearance loans in its delinquency numbers.
Examination of delinquencies by installment shows a slight decrease, 33bp among loans of 30 days or more due to a rate of 2.34%, reflecting fewer loans that have become unpaid. Loans that are 60-90 days past due, however, rose 138 basis points to 2.15%, the highest level since MBA began collecting data in 1979. Q3 2010, at the height of the housing crisis.
“The effects of the COVID-19 pandemic on the ability of some homeowners to make their mortgage payments could not be more apparent. The almost 4 percentage point increase in the delinquency rate was the largest quarterly increase in the history of the MBA survey, ”said Marina Walsh, vice president of MBA industry analysis . “Second quarter results also mark highest overall delinquency rate in nine years, and a high delinquency rate for FHA loans. ”
Walsh added: “There has also been a movement in lending to the later stages of delinquency, with the 60-day delinquency rate reaching a new survey high and the over 90-day delinquency rate reaching an all-time high. high level since the third quarter of 2010. On a brighter note, 30-day defaults fell in the second quarter, indicating that the tide of new defaults may dissipate. ”
The MBA report notes that mortgage defaults closely track job availability and that the largest quarterly increases in delinquency rates have been New Jersey (628 bps), Nevada (600 bps), New York (575 bps), Florida (569 bps) and Hawaii. (525 basis points). These states all have economies that depend on the leisure and hospitality jobs that have been particularly affected by the COVID-19 pandemic.
“The labor market has improved over the past three months, with the Unemployment rate drops for third consecutive month from a peak of 14.7% in April to 10.2% in July. Walsh said. “This bright spot in the employment situation is tempered by many uncertainties, including the ambiguous status of improved unemployment benefits and other stimulus measures, the recent wave of new COVID -19 cases, and the withdrawal of reopening in some states. “And there’s no way to water down a 32.9% drop in GDP in the second quarter. Some homeowners, especially those with FHA loans, will continue to be affected by this crisis, and defaults will likely remain at high levels for the foreseeable future.. ”
Walsh added, “Fortunately, there are several mitigating factors that make this current surge in mortgage delinquencies different from the Great Recession. These factors include home price gains, several years of home equity accumulation, and loan deferral and modification options that present alternatives. to foreclosure for distressed homeowners. “
Increases in delinquency were apparent for all types of loans. VA loans receive the smallest impact, an increase of 340 basis points at a rate of 8.05%, but it is still the highest rate since 2009. The rate for conventional loans increased by 352 percentage points. first quarter base at 6.68%, the highest rate since the third quarter of 2012 and FHA delinquencies jumped 596 basis points to 15.65% – the highest rate since the start of the survey in 1979. All three loan products were also significantly higher than a year earlier; conventional loans increased by 307 bps, VA loans by 381 bps and FHA loans by 643 bps.
The most serious categories of delinquency have not yet been affected by the pandemic. The percentage of loans in foreclosure at the end of the second quarter was 0.68%, down 5 basis points from the first quarter and 22 basis points lower than a year ago. The percentage of loans on which foreclosure measures were initiated in the second quarter decreased 16 basis points from the first quarter to 0.03%. This decline may, in part, be due to the foreclosure moratorium put in place for government guaranteed loans.
Longer-term default rates have also increased for all types of mortgages, both quarterly and annually. The severe default rate increased 219 basis points for conventional loans, 467 basis points for FHA loans and 218 basis points for VA loans compared to the previous quarter. Compared to a year ago, the increases were 184 basis points for conventional loans, 453 and 217 basis points for FHA and VA loans, respectively.