Following a significant decline of almost a full percentage point in March, April's 7.11% dip in mortgage delinquencies might seem a lesser event, but the data analysts at Black Knight say it's a big deal because it pulled down the delinquency rate to less than 5% for the first time since COVID-19 toppled our lives and economy.
"As the economy gets back on track, we’re churning through a lot of the distressed inventory of mortgages," Black Knight reports. "At the current rate of improvement, overall delinquencies should be back to pre-pandemic levels by the end of 2021."
While Black Knight's First Look at April 2021 Mortgage Performance report gave some cause for optimism—while rising 23% from March, delinquencies are down 33% from April 2019—it also contains some concerning stats. While serious delinquencies also saw strong improvement (-151,000 month-over-month), nearly 1.8 million such serious delinquencies remain, which is four times as many as we've seen prior to the pandemic.
The vast majority of those serious delinquencies are in forbearance. The next two fiscal quarters will determine what that will mean for default servicing.
"As of right now, it looks as though the end of Q3 and the beginning of Q4 will be an inflection point in terms of our understanding of how the post-forbearance world will shake out," Black Knight reports, "Until then, all improvement is welcome news."
With moratoria still in place and robust borrower participation in forbearance plans, both foreclosure starts and active foreclosure inventory hit new record lows once again in April, says Black Knight. The month saw some 3,700 starts and only 153,000 active foreclosures.
Foreclosures remain at record lows because the nation and local municipalities alike have implemented and continually extended foreclosure bans and forbearance allowances.
Actions taken by the government to offset record delinquencies have been beneficial to U.S. homeowners, but as deadlines and a more typical borrower behavior ensue following a vaccine rollout, the default servicing side of the industry is preparing to be hit with daunting volumes.
In a recent DS News webinar, Flagstar's Courtney Thompson pointed out that a whole population new to the delinquency side, was born of the COVID-19 fallout, and she said the industry needed to find a way to handle this emerging market.
“We had a whole new group of humans that were in default and entered into the delinquency process,” Thompson said at the time. “This was not your traditional default consumer … these are consumers who are not used to navigating the different channels of default, whether it's forbearance, loss mitigation, or a repayment plan." Thus, panelists at that table agreed that communication between borrower and lender is key.
In the loan performance report, Black Knight also reported that mortgage prepayments fell nearly 23% in April to their lowest level since May 2020. This, according to the analysts, reflects the impact of interest rate spikes on refinancing activity earlier this year.
As Black Knight's April Originations Market Monitor report showed, rate locks have fallen further over the past month, suggesting limited prepay volumes in the months to come.