There was an overall increase in mortgage delinquency among all types of loans during the third quarter of 2017. This is according to the Mortgage Bankers Association whose National Delinquency Survey for 3Q17 is up.
The previous hurricanes that hit certain states and payment timing issues for those not directly affected spurred this increase in mortgage delinquency at its earliest stage per the survey.
Mortgage Delinquency in the Third Quarter
In the third quarter of 2017, 4.88% of all loans outstanding on one-to-four-unit residential homes were delinquent. Last quarter’s mortgage delinquency was 64 basis points higher from the second quarter and 36 basis points more from one year ago.
The MBA measures mortgage delinquency rate as inclusive of “loans that are at least one payment past due but does not include loans in the process of foreclosure.”
The percentage of loans on which foreclosure actions were initiated decreased by a basis point to 0.25% from the previous quarter and was five basis points lower from a year ago. Also, the share of loans in the process of foreclosure was 1.23% ‒ a reduction of 6 basis points from 2Q17 and 32 basis points from a year ago.
Meanwhile, the percentage of loans that are seriously delinquent or 90 days + more past due or in the process of foreclosure has increased by 3 basis points from the second quarter but still 44 basis points lower from last year.
The 30-day delinquency rate accounted for 50 basis points of the 64-basis point increase of the overall delinquency rate.
Marina Walsh who serves as vice president for Industry Analysis at MBA, commented, “Hurricanes Harvey, Irma and Maria caused disruptions and destruction in numerous states. Florida, Texas, neighboring states, as well as devastated Puerto Rico, saw substantial increases in their past due rates.”
Notwithstanding forbearance and other mortgage relief options that were in place in areas affected by the storms, the MBA survey asked the loan servicers to report loans as delinquent if the payment was not made based on the loan’s original terms.
Third-Quarter Delinquency by Loan Type
According to the survey, all types of mortgages showed increased delinquencies during the third quarter versus the second quarter:
- FHA – The delinquency rate on FHA-insured loans rose from 7.94% to 9.40%. This increase of 146 basis points is the highest quarter-over-quarter increase in the survey’s history.
- VA – The VA loan delinquency rate rose from 3.72% to 4.24%.
- Conventional – Delinquencies on conventional loans increased to 3.97% from 3.47%.
“While the storms played a critical factor in explaining the rise in the overall delinquency rate, there are other factors to consider, especially given delinquency rate increases in other states not directly impacted by the storms. First, there were timing issues associated with the last day of the month being a Saturday. Processing for mortgage payments made over the weekend did not occur until Monday, October 2 and thus these mortgage payments were identified as 30-days delinquent per NDS definitions,” Ms. Walsh explained.
The second, according to Ms. Walsh, being that delinquency rates were at their historic lows in 2Q17. FHA and VA delinquency rates have been at their lowest levels since 1996 and 1976, while conventional delinquency rates have reached their lowest levels since 2005.
Seasonality, rising loan-to-value ratios and debt-to-income ratios, normal loan aging and declining average credit scores on FHA loans must also be considered. Indeed, the effect of the most recent hurricanes on mortgages is likely to be felt in three to four more quarters.
“That said, we see loan performance as still healthy and strong, supported by a positive employment and wage outlook,” Ms. Walsh concluded.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.
