MBA: Mortgage Delinquencies Rise in 3Q

Summer hurricanes and payment timing issues drove an uptick in early stage mortgage delinquencies, the Mortgage Bankers Association reported Friday.

The MBA Third Quarter National Delinquency Survey said the delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 4.88 percent of all loans outstanding at the end of the third quarter, up 64 basis points from the previous quarter and 36 basis points higher than one year ago.

The survey reported the percentage of loans on which foreclosure actions were started during the third quarter fell slightly to 0.25 percent, a decrease of one basis point from the previous quarter and five basis points lower than one year ago.

MBA said the percentage of loans in the foreclosure process at the end of the third quarter fell to 1.23 percent, down 6 basis points from the previous quarter and 32 basis points lower than one year ago.

The serious delinquency rate–the percentage of loans 90 days or more past due or in the process of foreclosure–rose to 2.52 percent in the third quarter, up three basis points from the previous quarter but 44 basis points lower than one year ago.

MBA Vice President of Industry Analysis Marina Walsh said mortgage delinquencies increased across all loan types–FHA, VA and conventional–in the third quarter.

“Hurricanes Harvey, Irma and Maria caused disruptions and destruction in numerous states,” Walsh said. “Florida, Texas, neighboring states, as well as devastated Puerto Rico, saw substantial increases in their past due rates. 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.”

MBS reported the FHA delinquency rate increased to 9.40 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. The VA delinquency rate increased by 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.

“While the storms played a critical factor in explaining the rise in the overall delinquency rate, there are other factors to consider, especially given delinquency rate increases in other states not directly impacted by the storms,” Walsh said. “First, there were timing issues associated with the last day of the month being a Saturday. Processing for mortgage payments made over the weekend did not occur until Monday, October 2 and thus these mortgage payments were identified as 30-days delinquent per NDS definitions.”

Walsh also noted delinquency rates were already at historic lows in the second quarter. “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,” she said. “It would not be unexpected for delinquencies to eventually increase from these levels.”

Walsh said 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.

“Most of the major variances from the second to third quarter of 2017 are tied to early delinquencies for all loan types,” Walsh said. “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 said it will likely take about 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 said. “Thus far in 2017, job growth is averaging 169,000 jobs per month, unemployment rate has decreased from 4.8 to 4.1 percent and wage growth is 3.8 percent on a year over year basis.”

The NDS, conducted since 1953, covers 39 million loans on one- to four- unit residential properties. Loans surveyed are reported by more than 100 lenders, including mortgage bank, commercial banks and thrifts.