Decreased Delinquencies Only Tell ‘Part of the Story’

A survey published by the Mortgage Bankers Association (MBA) showed that among mortgage loans on one-to-four-unit residential properties, delinquencies decreased to a seasonally adjusted rate of 6.73% of all loans outstanding at the end of this year's Q4.

That's a drop from 7.65% of all loans outstanding at the end of last year's Q3.

Note: For the purposes of its survey, MBA has servicers report loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage. (An estimated 2.7 million homeowners were on forbearance plans as of January 31, 2021.)

The delinquency rate was down 92 basis points from Q3 2020 and up 296 basis points from one year ago.

The percentage of loans facing foreclosure starts remained unchanged over the past two quarters at .03%.

"For the second consecutive quarter, homeowners' ability to make their mortgage payments improved," said Marina Walsh, CMB, MBA's VP of Industry Analysis. "The 92-basis-point drop in the delinquency rate in the fourth quarter was the biggest quarterly decline in the history of MBA's survey dating back to 1979. Total mortgage delinquencies across the three loan types - conventional, FHA, and VA - and across the major stages of delinquency - 30-day, 60-day, and 90-day - declined from last year's third quarter."

Walsh told the researchers that the decline tells just part of the story. Delinquencies and unemployment correlate closely. While the jobs situation has improved there remain 6.5 percent fewer jobs than pre-pandemic.

Homeowners employed in service industries such as hospitality "face longer-term hardships," Walsh added. Those borrowers are more likely to have FHA and VA loans

The seriously delinquent rate for FHA and VA loans during the end of Q4 reached record highs of 11.19% and 5.96%, respectively.

"Mortgage forbearance, foreclosure moratoriums, enhanced unemployment benefits, and stimulus payments have helped distressed homeowners remain in their homes. Additional stimulus and homeowner relief is likely necessary until economic growth picks up later this year. Longer-term, loss mitigation alternatives such as permanent modifications, payment deferrals, and loan payoffs — through either refinancing or home sale — may be needed for these homeowners to recover," added Walsh.