Delinquencies Up for All Loan Types; FHA Loans Hardest Hit

The National Delinquency Survey (NDS), a quarterly measure of mortgage performance from the Mortgage Bankers Association (MBA), found delinquencies in the fourth quarter of 2017 had increased both quarter over quarter and year-over-year.  The NDS findings echo those from Black Knight which were released earlier in the week, reflecting significant impact from the September and October hurricanes.

The national delinquency rate on one-to-four-unit dwellings increased to a seasonally adjusted rate of 5.17 percent at the end of the quarter.  This includes loans that are at least one payment past due but does not include loans in the process of foreclosure.  The fourth quarter rate represented an increase of 29 basis points (bps) compared to the third quarter of 2017 and was 37 bps higher than at the end of the same quarter in 2016.

Hurricanes Irma, Harvey, and Maria struck principally in Gulf Coast Texas, Florida, and Puerto Rico respectively. Parts of Louisiana were impacted by Harvey, and Irma also affected Coastal Georgia. The storms hit in late September (Q3) into late October; Black Knight and other sources noted a rise in early delinquencies starting in October.

MBA notes that, by the end of the fourth quarter delinquencies in the 30+ days bucket dropped by 15 points as borrowers affected by the hurricanes either became current on their payments or moved to later stages of delinquency. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 2.91 percent in the fourth quarter, an increase of 39 basis points from Q3, but 22 basis points lower than the previous fourth quarter.

Marina Walsh, MBA's Vice President of Industry Analysis said, "While the earliest-stage delinquency rate dropped, the 60-day and 90-day delinquency rates did increase in the fourth quarter of 2017.  Despite the hurricanes and these quarter-over-quarter results, most states are seeing overall mortgage delinquency rates at lower levels than a year ago."

The rate of foreclosure starts during the quarter was 0.25 percent, the same rate as in the third quarter and 3 bps lower than a year earlier.  The percentage of loans in the foreclosure process, i.e. the foreclosure inventory, at the end of the fourth quarter was 1.19 percent, down 4 bps and 34 bps from the two earlier periods.

Walsh credited the storm-related foreclosure moratoria put in place by Freddie Mac, Fannie Mae, the VA and FHA as playing a large role in keeping foreclosure starts at bay and preventing an increase in the foreclosure inventory.  She added, "As forbearance periods expire, an increase in the percent of loans in foreclosure is likely.  We anticipate it will be several more quarters before the effects of the September hurricanes on the survey results dissipate, especially given extended forbearance periods." 

Mortgage delinquencies increased across all loan types - FHA, VA and conventional - on a seasonally-adjusted basis. The rise in delinquencies from the third to fourth quarter of 2017 are primarily tied to 90+ day delinquencies for all loan types, but particularly FHA loans.  Compared to the third quarter of 2017, the 90+ day delinquency rate on FHA loans rose by 75 basis points, versus 29 basis points for VA loans and 27 basis points for conventional loans."

"The FHA overall delinquency rate in the fourth quarter of 2017 is higher compared to the fourth quarter of 2016 in all but three states.  FHA borrowers appear to be impacted not only by the storms but other factors that could be stretching their ability to make payments," Walsh continued. "Regardless of the hurricanes, an increase in delinquencies - particularly FHA delinquencies - off historic lows is not particularly surprising given the seasoning of the loan portfolio, expected higher interest rates, declining average credit scores on new FHA endorsements since 2014 and rising debt-to-income ratios.  Mitigating factors include low unemployment and increasing home equity levels that provide homeowners with more options to cure a potential default."