Hurricane Florence, Seasonal Trends Conspire to Boost Mortgage Delinquencies

Mortgage delinquencies surged by 13.2 percent in September, the largest single-month increase since November 2008.  But despite the ominous connotations of that comparison, Black Knight attributed the September rise to the calendar and Mother Nature rather than the economy.  The company says that delinquencies tend to rise in September and have done so in 16 of the past 19 years, usually by an average of 5.2 percent.  This probably is because 30 days hath the month, allowing less time for mortgage payments to be received and processed.  This year the month also ended on a Sunday, which also almost always occasions a delinquency jump, one that is usually reversed, at least partially, the following month.

More serious and longer lived will be the expected impact from Hurricane Florence. There was a 38 percent increase in delinquencies in FEMA-declared disaster areas during the month, with more than 6,000 new delinquencies that can be directly attributed to the storm. The company says this is probably just the beginning of problems from the Florence which hit mid-month. 

In total, loans that were 30 or more days past due but not in foreclosure rose by 240,000 to 2,049,000.  This is 3.97 percent of all mortgaged homes. Delinquencies were still down by 9.77 percent or 196,000 loans compared to a year earlier.

Serious delinquencies were also up, increasing by 7,000 to 268,000 loans that were more than 90 days past due but not in foreclosure.  This is 63,000 fewer loans in that category than the previous September.

Black Knight said that other mortgage performance data for the month was more positive. Foreclosures starts were down 15.1 percent from August to a near 18 year low of 40,000. This is a year-over-year change of -11.5 percent.

The foreclosure inventory, homes in the process of foreclosure, fell by another 13,000 units during the month and are down by 90,000 from September 2017 to a total of 231,700.  The foreclosure rate fell to 1.53 percent of seriously delinquent loans.  Both the inventory and the foreclosure rate are below pre-recession averages for the first time since the housing crisis.

The states with the highest rates of non-performing loans remain nearly unchanged from month to month. They are Mississippi (10.3 percent), Louisiana (8.2 percent), Alabama (7.4 percent), West Virginia (6.8 percent), and Arkansas (6.32 percent.)

Prepayment speeds fell by about 24.5 percent compared to August and were 26.7 percent lower than a year earlier.  Black knight says prepayments have been pushed lower by rising interest rates and home prices.  This measure used to indicate refinance activity but is now primarily drive by housing turnover which has also been affected by lower affordability.

The above data were released by Black Knight as its "first look" at September loan performance information. The company will provide a more comprehensive report in its November Mortgage Monitor which will be released on November 5.