Weather Sets Up Push-Pull with Delinquency Rate

Are weather patterns beginning to provoke annual swings in mortgage delinquencies? Black Knight suggests, in its first look at August 2018 mortgage performance data, that could be the case in 2017-2018.

The incidence of mortgage distress was heading to millennium low levels last year before the one-two punch of Hurricanes Harvey and Irma.  The first struck the Gulf Coast of Texas in the Houston region.  A few weeks later Irma, although less destructive than anticipated, created havoc on both coasts of Florida and delinquency rates shot skyward in both states.  A year later those hurricane related delinquencies have retreated; Black Knight reports that fewer than 25,000 remain on the mainland U.S. (most indicators of distress do not include the effects of Hurricane Maria on Puerto Rico and the U.S. Virgin Islands).  However, as the remaining storm-related delinquencies aged there was an 11 percent  spike in foreclosure starts in July.  This drove what had been a declining rate of starts to 48,300, the highest total in three months. That effect also seems to have abated.

All of this improvement comes just in time for last week's Hurricane Florence and what Black Knight speculates could be a profound impact on mortgage performance in both coastal and inland eastern North Carolina and perhaps some parts of South Carolina.

But the actual before the hypothetical, even a well-grounded version.

Black Knight says the last two months have constituted the best summer on record for improvements in delinquencies.  They fell by an aggregate of 5.7 percent over those two months, the strongest decline for that specific period since before the turn of the century.  Delinquencies are now at the lowest level in more than 12 years.  Foreclosure starts also pulled back, allowing the number of active foreclosures to resume its previous downward trend.

The U.S. foreclosure rate, the percentage of loans 30 or more days past due but not in foreclosure, was 3.52 percent in August a 2.43 percent decline from July and down 10.39 percent from the prior August.  This was 43,000 fewer delinquent loans than in July and 185,000 fewer than a year earlier.

The number of serious delinquencies, loans more than 90 days past due but not in foreclosure, dropped by 18,000 from the prior month and by 47,000 from a year earlier to 510,000 in August.  Loans that were in active foreclosure numbered 280,000, down by 13,000 and 105,000 from the two earlier periods. There was a total of 2,099,000 non-current loans nationwide at the end of August, 55,000 fewer than in July and a reduction of 290,000 year over year.

Which brings us back to Florence.  Loan performance in the affected parts of the  Atlantic Coast is unlikely to continue at its present rate of improvement, and if Harvey and Irma are any indication, may increase significantly.  Black Knight says there were 391,000 homeowners with mortgages within Florence's evacuation radius and 283,000 within the 18 North Carolina counties declared as FEMA disaster areas.  If the effects of Florence follow a trend similar to that seen after last year's storms, thousands of homeowners could be at risk of becoming delinquent, and the downward trend of distress indicators could, at a minimum, be put on hold.

Black Knight will provide a more in-depth review of this data in its monthly Mortgage Monitor report which will be published by Oct. 8, 2018.