Black Knight: Tax Refunds As a Mortgage Delinquency Strategy?
Getting a refund leads to fantasies about a vacation, a newer vehicle, some household purchases. But for others, a refund is a means of getting current on their mortgage.
Black Knight Financial Services, Jacksonville, Fla., said its latest Mortgage Monitor suggests that up to 300,000 delinquent borrowers could use their tax refund to pay their mortgages current.
Black Knight examined Internal Revenue Service tax filing statistics with mortgage performance data to quantify potential impacts of the upcoming tax season on the mortgage market. Black Knight Data & Analytics Executive Vice President Ben Graboske noted a “historically distinct” correlation between income tax refund disbursements and delinquent mortgages curing to current status.
“Nearly one in five Americans file their returns within the first two weeks of tax season, and over 40 percent had completed their taxes by the first week in March,” Graboske said. “Unsurprisingly, incentive played a big role in this timing; not only were Americans who filed early more likely to receive a refund than those filing later, but they also received larger refunds on average. Likewise, mortgage cures–delinquent borrowers who bring themselves back to current status–correspondingly spike in February and March as well, suggesting that some portion of Americans are using their tax refunds to make past-due payments on their mortgages.”
In recent years, IRS data suggest nearly 300,000 borrowers on average paying their loans current in February and March alone, on top of normal cure volumes for the typical month. At 40 percent, Black Knight said FHA/VA loans see the most pronounced spike in tax season cures, with early and moderate stage delinquencies seeing the greatest impact.
“All things being equal, there’s no reason to expect this tax season to be any different,” Graboske said. “We see this increase in cures across the delinquency and foreclosure spectrum, but it is most pronounced in the early and moderate stages of delinquency. This makes sense, in that a tax refund may be sufficient to pay a few months of past-due mortgage payments, but is likely not enough to bring a homeowner out of severe delinquency. Likewise, the most pronounced impact was seen among FHA/VA borrowers, who might be expected to have less cash reserves on hand and therefore be more dependent upon the infusion of funds during tax refund season to pay down late payments.”
Graboske noted interest rate increases have made housing the least affordable it has been since 2010; it now takes 22.2 percent of median income to purchase the median-priced home. He said the fourth quarter saw a 10 percent rise in the principal and interest payment required to purchase the median-priced home.
Other key data from Black Knight, through December:
–Total U.S. loan delinquency rate: 4.42%, a month-over-month decline of nearly 1 percent from November.
–Total U.S. foreclosure pre-sale inventory rate: 0.95%, a 3.29 percent decline from November.
–States with highest percentage of non-current loans: Mississippi, Louisiana, West Virginia, Alabama and New Jersey.
–States with the lowest percentage of non-current loans: Idaho, Montana, Minnesota, North Dakota and Colorado
–States with highest percentage of seriously delinquent loans: Mississippi, Louisiana, Alabama, Arkansas and Tennessee.
