Second Quarter Loan Performance Shows Steady Improvement

Loan performance continued to improve in the second quarter. The overall delinquency rate on one-to-four-unit residential properties fell to a seasonally adjusted rate of 4.36 percent of all loans outstanding at the end of that period, a 27-basis point (bp) decline from the first quarter of this year.  The National Delinquency Survey conducted by the Mortgage Bankers Association (MBA) found delinquencies in all stages were lower than during the first quarter; the 30-day delinquency rate dropped 2 bps while the 60-day and 90-delinquency buckets dropped by 8 and 18 bps respectively.  The overall rate, however was up 12 bps from the second quarter of 2017.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.  The share of those loans at the end of the second quarter was 1.05 percent, down 11 bps from the first quarter of 2018 and 24 bps lower than one year ago. This was the lowest foreclosure inventory rate since the third quarter of 2006. Foreclosure starts were also lower, dropping by 4 bps quarter-over-quarter to 0.24 percent, the lowest level since the second quarter of 1987. 

"We continue to see improvement in the overall mortgage delinquency rate as the impact of the hurricanes from one year ago lessens, particularly for conventional loans," according to Marina Walsh, Vice President of Industry Analysis at MBA. "Among the various loan types, the delinquency rate for conventional loans was two basis points lower than one year ago, prior to the hurricanes.  While delinquencies for both FHA and VA loans were up from one year ago, they were improved over the previous quarter."

"The economic outlook continues to support good loan performance.  Gross domestic product grew at a 4.1 percent rate, the unemployment rate was at an 18-year low, and job growth is averaging over 210,000 jobs per month, so far this year. This means the economy is close to full employment." 

"But even with positive economic news, we continue to monitor factors that may contribute to a rise in delinquencies in future quarters.  Like past natural disasters, the wildfires in California may have a negative impact. Other factors include the aging of servicing portfolios as mortgage refinances slow, and the changing credit quality among certain loan types."

Performance improved for all loan types. The delinquency rate for conventional loans decreased 33 bps to 3.45 percent; the FHA rate declined 32 bps to 8.70 percent and VA delinquencies were down 35 bps to 3.97 percent over the previous quarter.  Year-over-year changes were more mixed; conventional loan delinquencies dropped by 2 bps, but the FHA and VA delinquency rates rose 76 bps and 25 bps respectively.

Both Texas and Florida continue to recover from the September 2017 hurricanes.  The non-seasonally-adjusted overall mortgage delinquency rate in Texas dropped by 26 bps to 5.36 percent in the second quarter. Prior to the hurricane one year ago, the overall delinquency rate for Texas was 5.05 percent. In Florida, the non-seasonally-adjusted overall mortgage delinquency rate on all loans dropped 139 bps to 5.20 percent in the second quarter.  The pre-storm rate in the state was 4.07 percent. These numbers do not reflect any storm-related forbearance that might be in place. The survey asks servicers to report these loans as delinquent if the payment was not made based on the original terms of the mortgage.