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Interesting Trends in Forbearance

Mortgage delinquency is on a decline but the latest quarterly TransUnion [1] Industry Insights Report released on Tuesday threw up some interesting trends in Forbearance as the mortgage market continued to perform well in the first quarter of 2018. The report [2] features data and insights on consumer credit trends including mortgages, credit cards, auto loans, and personal loans.

Serious mortgage delinquency rates continued to decline for the 19th consecutive quarter, the report said, and fell to 1.74 percent in Q1 2018 from 2.07 percent during the same quarter last year.

Despite an overall drop in delinquencies, the hurricanes in the third quarter of 2017 “have driven an interesting dynamic related to the number accounts in forbearance, which are typically reported as current to credit reporting agencies regardless of their actual payment status,” the report noted.

In areas like Houston, Miami, and Tampa only 1800 out of 2.36 million active mortgages were reported to be in some form of forbearance in the second quarter of 2017. “That number skyrocketed to 164,000 mortgages in some form of forbearance status by the end of Q1 2018,” the report revealed.

“The opening quarter of 2018 was more of the same on the mortgage delinquency front. Borrowers continue to perform well, making on-time payments that are more in line with traditional patterns observed prior to the mortgage crisis,” said Joe Mellman, SVP and Mortgage Business Leader at TransUnion. “We will also monitor the forbearance population in areas affected by last year’s hurricanes to better understand that dynamic and its influence on the region’s mortgage market.”

The report revealed that while balances rose in aggregate for the year, average new mortgage loan balances declined from $235,361 in Q1 2017 to $229,538 in Q1 2018 as a result of a deceleration in refinancing activity and a lower share of super prime loans.

The shift in new origination mix, as a result, pushed subprime and near-prime originations to 16 percent in the last quarter of 2017 from 14.4 percent in the last quarter of 2016. TransUnion said that originations were viewed one quarter in arrears to account for reporting lag.

“It is encouraging that balances continue to increase, as new purchase originations outpace paydowns. As time passes from the housing bubble and mortgage loan performance continues to remain exceptionally low, non-prime borrowers may begin to see their access to mortgage credit open up,” Mellman said. “However, it’s likely that mortgage lenders will approach the non-prime market cautiously, incorporating new alternative data sources to determine which non-prime borrowers offer the least risk.”