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Bracing for Household Debt Spikes

debtBy Q4 2019, the US household debt per capita hit the all-time high of $42,935.13 after a steady increase from Q3 2013, according to LearnBonds.  Mortgage debt, specifically, hit $9.56 trillion, a record high.

Additionally, just 0.89% of all loans were non-performing in Q4, but according to the AEI Housing Center, with many homeonwers entering forbearance, the housing industry may need to brace for a delinquency spike.

AEI said delinquencies could soar in a steep recession, even with forbearance. The report also said there could be a drop in loan originations in both the present and long term.

The drop may be attributed to the reduced demand, the difficulty to close on home sales and mortgage transactions, extended timelines, and reduced capacity brought on by growing forbearance calls.

Additionally, potential borrowers may have lower credit scores, debt-to-income ratios, and down payments. AEI also said many originators and servicers “will fail or close up shop.”

The report also projects the Non-Qm market to recover slowly, as many Non-QM originators have already stopped taking in new applications.

AEI noted that 93% of single-family mortgages are held by federal agencies, 64% are guaranteed by the GSEs and Ginnie Mae and covered by the CARES Act, and 29% consists of loans held by banks and credit unions. The remaining 8% of single-family loans are held by a variety of servicers and are not covered by the CARES Act.

Ginnie Mae announced the issuance of its mortgage-backed securities (MBS) totaled $55.21 billion in March and provides financing for more than 211,000 homeowners and renters.

The total outstanding principal balance for Ginnie Mae loans was $2.14 trillion—an increase from March 2019’s $2.05 trillion.

AEI’s report revealed 4.31% of Ginnie Mae loans were in forbearance, compared to 1.69% of loans serviced by the GSEs.

The analysis states that as of April 7, these shares have continued to increase and that it is “reasonable to project” that by the end of April, nearly 10-15% of Ginnie Mae loans and 4-8% of GSE loans will be in forbearance.

About Author: Seth Welborn

Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.
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