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Delinquency Rate Upswings in July

Up and Down Graph BHThe national delinquency rate rose by nearly 5 percent in July, though the increase was likely primarily calendar-driven, as the month ended on a Sunday, according to the recent monthly Mortgage Monitor from Black Knight Financial Services [1].

The report states that as has been noted before, Sunday month-ends typically see a rise in delinquencies as payments in such cases are not able to be processed on the final two calendar days of the month. They also state that such rises are typically followed by a reduction in the following month.

Foreclosure starts fell 12 percent from June according the Black Knight, making July’s 61,300 the second lowest monthly total for foreclosure starts in over 10 years. In addition, July also saw the second lowest first time foreclosure start volume, on record dating back to at least 2000.

Black Knight also reports that the monthly prepayment rate fell by almost 12 percent despite an increased number of refinance candidates on the market and interest rates hovering near record lows. They show that the inventory of loans in active foreclosure continues its long-term downward trend, having fallen 20 percent year-to-date. In addition, at just 550,000, this number hit its lowest point since July 2007.

The Mortgage Monitor also reports that for the second Lien HELOC delinquency rate, they saw a continued rising. They report that they have now seen annual increases for four consecutive months, and that prior to that, there had only been one annual increase in nearly 4 years. As of June, the report states that HELOC delinquency rates were 8 percent higher than at this point last year. They compare this to delinquencies on first lien mortgages that were down 10 percent over the same period. They attribute the rise to being driven by almost entirely delinquencies following draw period expirations in bubble-era, 2004-2006, vintage HELOCs.

Delinquency rates on 2006 vintage HELOCs rose 24 percent over the first half of 2016, a more pronounced initial increase than had been seen from the 2004 and 2005 vintages during their reset years. Black Knight also reports that 50 percent of 2006 vintage resets occurred in the first half of 2016, as compared to 45 percent for the prior few vintages. This made for a more front-loaded reset-fueled delinquency spike. The report states that if this is indeed a primary driver behind the more pronounced 2006 vintage delinquencies, there may start to be some normalization seen over the back half of 2016.