Loan Performance Responds to Slowing Economy, Natural Disasters

Both the Mortgage Bankers Association (MBA) and CoreLogic issued data on recent loan performance on Tuesday. For CoreLogic the Monthly Loan Performance Report covered May, MBA's National Delinquency Survey is for the second quarter of this year.

MBA notes an increase in the overall seasonally adjusted delinquency rate to 4.53 percent of all loans outstanding at the end of the quarter.  This is an increase of 11 basis points (bps) from the first quarter of this year and 17 bps from the second quarter of 2018. The share of loans that were 30 days or more past due increased by 4 bps to 2.62 percent, the 60-day rate was unchanged at 0.81 percent and the 90-day rate was up 7 bps to 1.10 percent.  Those numbers do not include loans in the process of foreclosure.

Those loans, the foreclosure inventory, had a 0.90 rate, down from 0.92 percent the previous quarter and 15 bps lower year-over-year. It was the smallest the inventory had been since the fourth quarter of 1995. Foreclosure starts rose 2 basis points to 0.25 percent.

Conventional loan delinquencies rose 15 bps to 3.61 percent compared to the first quarter and the FHA rate jumped 29 bps to 9.22 percent.  The VA rate bucked the trend, falling 13 bps to 4.24 percent.  Delinquencies were higher than a year earlier for all loan types; up 16 bps for conventional loans, 52 bps for FHA, and 27 bps for those guaranteed by the VA.

"The unemployment rate remains quite low, but the national mortgage delinquency rate in the second quarter rose from both the first quarter and one year ago. The economy is slowing, and this poses the risk of further increases in delinquency rates," said Marina Walsh, MBA's Vice President of Industry Analysis. "Across loan types, the FHA delinquency rate posted the largest variance, increasing 29 basis points from last quarter and 52 basis points from a year ago."

CoreLogic put the national delinquency rate at 3.6 percent in May, including loans in the process of foreclosure. This is down from 4.2 percent in May 2018.  The overall delinquency rate has fallen on a year-over-year basis for 17 straight months.

Most of the decline in delinquencies in the CoreLogic report came from the 120+ day bucket which fell a half point to 1.0 percent. There were 0.1 percent reductions in the 30-59 day and foreclosure inventory categories to 1.7 and 0.4 percent respectively. The 60-89 and 90-119 buckets were unchanged at 0.6 and 0.3 percent.

CoreLogic also tracks transition rates from one stage of delinquency to the next. The share of mortgages that transitioned from current to 30-days past due was 0.8 percent in May 2019, unchanged from the prior May.  By comparison, in January 2007, just before the start of the financial crisis, the current-to-30-day transition rate was 1.2 percent and peaked in November 2008 at 2 percent.

Both CoreLogic and MBA noted the role of natural disasters in their numbers.  MBA said the five states where the overall delinquency rate saw the greatest increase were all affected by weather related issues.  West Virginia's rate was up 86 bps, Mississippi (81), Alabama (73) Indiana (73), and New Mexico (65).

Walsh said, "Heavy rains and flooding, extreme heat, and tornadoes in certain states during the spring, may have also contributed to the increase in the delinquency rate, as some borrowers likely faced disruption or hardship."

According to CoreLogic 20 of the country's largest metro areas posted at least a small annual increase in delinquencies in May. Some of the highest increases were in the Midwest and Southeast, specifically areas impacted by flooding in the spring.

The company's chief economist, Frank Nothaft said, "Growth in family income and home prices continues to support low delinquency rates. Communities that experienced a rise in delinquencies are generally those that also suffered from natural disasters. Last year's hurricanes and wildfires, and this spring's severe flooding from heavy rainstorms and snowmelt have pushed delinquency rates higher in these impacted communities."