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Increasing Delinquencies Among Lower-Income Borrowers Could Forecast Problems

Mobile homes aren’t a sector of the housing market we often examine here at DS News, but a recent study tracking delinquencies among mobile-home loans could signal the build-up of troubling trends. Are increasing mobile home delinquencies the “canary in the coal mine” that foreshadows larger problems impending for the housing market and for the broader economy?

According to research cited by UBS, a global financial services firm, mobile-home loan delinquencies are up 2 percent year-over-year. Moreover, the 30-day-plus delinquency rate has reached nearly 5 percent, which puts it at the highest level since 2005.

This spike among mobile-home delinquencies is not being echoed among single-family rental (SFR) home loans. As seen in the chart below, SFR 30-day-plus delinquencies have been on a steady downward trend for several years now. Mobile-home 30-day-plus delinquencies, however, began an upward climb around Q3 2016.

According to UBS, the increase in mobile-home delinquencies could be a sign that some lower-income Americans are not feeling the benefits of the ongoing economic recovery and growth. A UBS survey found that roughly three out of five consumers making less than $40,000 a year indicated that they struggled to pay their expenses.

In a statement, UBS said, “We interpret this data to mean that these individuals have not largely benefitted from these macro-dynamics, and may also be disproportionately exposed to industries that have experienced compression—rather than expansion—in the current economic conditions, such as retail or some areas of energy extraction.”

Black Knight, Inc., a Florida-based provider of software, data, and analytics for the mortgage and real estate industries, recently released their First Look mortgage performance data covering February 2018. This report found foreclosure starts reversing course from January’s 12-month high, declining by 25 percent. This marks a return to a trend of declining foreclosure starts, despite lingering ripples from Hurricanes Harvey and Irma.

According to the analyzed data, there are currently 331,000 properties in the foreclosure pre-sale inventory, a new post-recession low. The share of the seriously delinquent or active foreclosure population that moved through to foreclosure sale fell 19 percent from January’s spike. There are 2,198,800 properties 30 or more days past due, yet not in foreclosure.

That paints an optimistic view of the general state of the housing market and borrowers’ abilities to pay their loans. However, it remains to be seen whether the increase in mobile-home loan delinquencies will translate to increased delinquencies on other types of home loans, especially among lower- and middle-income families.

In their statement, UBS says, “We believe weakness in these two groups will drive higher credit losses at some stage over the next few years—particularly in credit card, installment, and student loans—with macroeconomic inflection from job growth to job loss as a likely catalyst.”

About Author: David Wharton

David Wharton, Managing Editor at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has over 15 years of experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. Wharton and his family currently reside in Arlington, Texas. He can be reached at David.Wharton@theMReport.com.

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