Mortgage delinquencies are expected to continue to rise this year.
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The nation’s serious delinquency rate for mortgage loans more than doubled from May to June, reaching its highest level since February 2015, according to a new loan performance insights report by property data analytics provider CoreLogic.
Barring further government support, CoreLogic predicts serious delinquencies could double again by early 2022, which could put downward pressure on other market variables like home prices and equity.
On a national level, 7.1% of mortgages were in some stage of delinquency in June (30 days or more past due, including those in foreclosure). This represents a 3.1-percentage point increase in the overall delinquency rate compared to June 2019, when it was 4%.
“Three months into the pandemic-induced recession, the 90-day delinquency rate has spiked to the highest rate in more than 21 years,” said Frank Nothaft, chief economist at CoreLogic. “Between May and June, the 90-day delinquency rate quadrupled, jumping from 0.5% to 2.3%, following a similar leap in the 60-day rate between April and May.”
To gain an accurate view of the mortgage market and loan performance health, CoreLogic examines all stages of delinquency, including the share that transition from current to 30 days past due. In June, the delinquency and transition rates, and the year-over-year changes, were as follows:
· Early-stage delinquencies (30 to 59 days past due): 1.8%, down from 2.1% in June 2019.
· Adverse delinquency (60 to 89 days past due): 1.8%, up from 0.6% in June 2019.
· Serious delinquency (90 days or more past due, including loans in foreclosure): 3.4%, up from 1.3% in June 2019. This is the highest serious delinquency rate since February 2015.
· Foreclosure inventory rate (the share of mortgages in some stage of the foreclosure process): 0.3%, down from 0.4% in June 2019.
· Transition rate (the share of mortgages that transitioned from current to 30 days past due): 1%, down from 1.1% in June 2019. The transition rate has slowed since April — when it peaked at 3.4% — as the labor market has improved since the early days of the pandemic.
The housing market is facing a paradox. The CoreLogic Home Price Index shows home-purchase demand has continued to accelerate this summer as prospective buyers take advantage of record-low mortgage rates. However, mortgage loan performance has progressively weakened since the start of the pandemic.
Sustained unemployment has pushed many homeowners further down the delinquency funnel, culminating in the five-year high in the serious delinquency rate this June. With unemployment projected to remain elevated through the remainder of 2020, CoreLogic says further impact on late-stage delinquencies and, eventually, foreclosure is likely.
CoreLogic predicts that, barring additional government programs and support, serious delinquency rates could nearly double from the June 2020 level by early 2022. Not only could millions of families potentially lose their home, through a short sale or foreclosure, but this also could create downward pressure on home prices — and consequently home equity — as distressed sales are pushed back into the for-sale market.
“Forbearance has been an important tool to help many homeowners through financial stress due to the pandemic,” said Frank Martell, president and CEO of CoreLogic. “While federal and state governments work toward additional economic support, we expect serious delinquencies will continue to rise, particularly among lower-income households, small business owners and employees within sectors like tourism that have been hard hit by the pandemic.”
All states logged annual increases in both overall and serious delinquency rates in June. COVID-19 hotspots continue to be affected most, with New Jersey (up 3.7 percentage points), New York (up 3.6 percentage points), Nevada (up 3.4 percentage points) and Florida (up 3 percentage points) topping the list for serious delinquency gains.
Similarly, all U.S. metro areas logged at least a small increase in serious delinquency rate in June. Miami, which has been hard hit by the collapse of the tourism market, experienced the largest annual increase at 5.1 percentage points. Other metro areas to post significant increases included Odessa, Texas (up 4.8 percentage points); Laredo, Texas (up 4.8 percentage points); McAllen-Edinburg-Mission, Texas (up 4.6 percentage points); and Atlantic City-Hammonton, New Jersey (up 4.3 percentage points).