As a sign that mortgages backed by Fannie Mae and Freddie Mac are performing better is the consistent decline in the serious delinquency rate on residential loans insured by the GSEs, which is now at a level comparable to what it was in September 2008 at the start of the conservatorships.
According to the Federal Housing Finance Agency (FHFA)'s November 2015 Foreclosure Report released Tuesday, 1.50 percent of mortgages backed by the GSEs were seriously delinquent as of the end of November 2015, which is the lowest level since the conservatorships began. The rate for both Fannie Mae- and Freddie Mac-backed loan has been steadily declining since 2010.
“What we’re seeing is that fewer loans are going 90 days or more delinquent,” said Naa Awaa Tagoe, Sr. Associate Director, Division of Housing Mission & Goals at FHFA. “There are always a certain number of people who are one payment behind, or maybe two, but the number of loans that are three or more months delinquent is coming down. That is partly because of improvements in the economy in the last several years. Unemployment is going down and house prices are going up. House prices are actually a big one, because all other things equal, people will have life events, such as a divorce or a death in the family. When that happens and somebody has to sell their home, if they’re above water and they have equity in their home, they can just sell the house and move on. If they’re underwater, it becomes a problem and they can’t sell the house.”
A decline in serious delinquencies for GSE-backed mortgage loans is concurrent with all the other declines in default-related metrics experienced by Fannie Mae and Freddie Mac in November. The GSEs completed 13,891 foreclosure prevention actions in November compared to 17,121 in October. Foreclosure prevention actions by the GSEs include loan modifications, repayment plans, forbearance plans, and charge-offs-in-lieu of foreclosure. The largest portion of those (8,569) were permanent loan modifications.
Foreclosure prevention actions have been on the steady decline for the last four years, concurrent with the decline of foreclosure sales and foreclosure inventory. The totals of foreclosure prevention actions on GSE-backed mortgage loans for the last four years are as follows: 541,219 in 2012; 447,728 in 2013; 307,218 in 2014; and 215,309 in 2015 through the end of November. This number includes home forfeiture actions, such as deeds-in-lieu of foreclosure and short sales as well as home retention actions.
“Fannie and Freddie over the last few years have really made more efficient their foreclosure prevention actions and the options provided to the borrower,” Tagoe said. “One of the main lessons they learned from the crisis is that early intervention is key. The earlier they can get to that borrower and offer them a solution, the more likely it is that the borrower will become current. Fannie and Freddie released a streamlined loan modification a couple of years ago. What that does is as soon as a borrower goes 90 days delinquent, they are solicited by their servicer, and their servicer sends them the terms of a loan modification. All they have to do is send in that first payment and they’re in a trial loan mod. When they make three payments, that’s converted to a permanent loan modification. So once loans become 90 days delinquent, you’re not seeing as many loans transitioning to later stages of delinquency.”
Another factor in the decline in serious delinquencies has been improved credit quality of the loans acquired by the GSEs since 2009 combined with a decline in the amount of serious delinquencies in the legacy portfolio, which consists of loans acquired before 2009, Tagoe said. The time it takes a loan to go into delinquency is also a factor—loans typically do not become delinquent until at least three years into the life of the loan.
As of the end of 2015, the GSEs are only 10,000 and change away from completing three million home retention actions since the star of 2009; the exact total of home retention actions completed is 2,989,126; the number of foreclosure prevention actions since 2009, including home forfeiture actions, was 3,626,692 as of the end of November 2015.
Click here to view the FHFA's November 2015 Foreclosure Prevention Report.