What Drives Early-Stage Delinquency Rates?

Delinquency rates have been declining around the U.S., but not for everyone, according to the latest Mortgage Monitor report from Black Knight. Early-stage delinquencies have been on the rise, and these increases were the most pronounced among first-time homebuyer loans.

“We’ve seen early-stage delinquencies rise over the last several years, with the increase being driven primarily by purchase loans,” said Black Knight Data & Analytics President Ben Graboske. Black Knight’s data reveals that the increase has primarily been driven by a rise in early-stage delinquencies among purchase loans.

Nearly 1% of Q1 2019 originations were delinquent six months post-origination. However, the report notes that while less than a third of the 2000-2005 delinquency average of 2.93%, this figure is up more than 60% over the past 24 months and the highest since 2010.

Additionally, despite rising early-stage delinquencies among first-time homebuyers, mortgage performance has been improving overall. According to Black Knight, strong performance in September saw the national delinquency rate ticking up just 0.08% seasonally, a 2% increase from one month prior and less than half the seasonal increase typically seen for September over the past 19 years.

“Though there has been some softening in GSE purchase loan performance, it hasn’t been to the extent seen among entry-level buyers,” Graboske adds. “All in all, first-time homebuyer originations combined between the GSEs and GNMA increased by nearly 50% between 2014 and 2018. However, whereas first-time homebuyers represent just over 40% of GSE purchase loans, they make up 70% of the GNMA purchase market.”

The national delinquency rate remains within 0.17%, and is 1.13% below its pre-recession (2000-2005) average. However, the rate of improvement has begun to slow noticeably. Excluding hurricane-impacted areas, the six-month average annual rate of decline had narrowed to less than 1% in recent months, suggesting that while performance remains strong, we may be nearing the trough in the national delinquency rate. Serious delinquencies continue to fall as well, and are now down 14% from last September, the lowest serious delinquency rate since June 2006. Foreclosure sales are down 14% year-over-year.