Delinquencies jump as COVID-19 takes toll

by Ryan Smith13 May 2020

The mortgage delinquency rate jumped in the first quarter, with loans in forbearance being counted among those delinquent, according to a new survey from the Mortgage Bankers Association.

The delinquency rate for one- to four-unit residential properties increased to a seasonally adjusted rate of 4.36% of all loans outstanding at the end of the first quarter, according to the MBA. The delinquency rate was up 59 basis points from Q4 2019 and down six basis points from a year ago. The percentage of loans in the foreclosure process dropped two basis points to 0.19%.

“The mortgage delinquency rate in the fourth quarter of 2019 was at its lowest rate since MBA’s survey began in 1979,” said Marina Walsh, MBA vice president of industry analysis. “Fast-forward to the end of March, and it is clear the COVID-19 pandemic is impacting homeowners. Mortgage delinquencies jumped by 59 basis points – which is reminiscent of the hurricane-related, 64-basis-point increase seen in the third quarter of 2017. The major variances from the fourth quarter of 2019 to this year’s first quarter are tied to the increase in early-stage delinquencies for all loan types. for example, the 30-day FHA delinquency rate rose by 113 basis points, the second-highest quarterly jump in the survey series. The 30-day VA delinquency rate rose by 78 basis points – the highest quarterly increase.”

The rate of serious delinquencies in the first quarter decreased by nine basis points and was down 29 basis points from the prior year. The foreclosure inventory rate, meanwhile, was at its lowest level since 1984. Foreclosure starts dropped two basis points from the previous quarter.

“Mortgage delinquencies track closely with the US job market,” Walsh said. “With unemployment rising from historical lows in early 2020 to a record 14.7% in April, it is inevitable that mortgage delinquencies would increase as well.

Walsh said that with 33.5 million workers applying for unemployment benefits in the last seven weeks and signs that economic distress would continue in Q2, “mortgage delinquencies will likely further increase.”

Walsh also said that there could be a flattening in foreclosure starts in the future due to the COVID-19-related moratorium on foreclosures and federal borrower forbearance guidelines. Nearly 4 million homeowners are currently on forbearance plans, but MBA;s survey asks servicers to report loans as delinquent if the payment was not made based on the original terms of the mortgage.

“Once foreclosure moratoria are lifted and forbearance periods end, borrower repayment and modification options, combined with year-over-year equity accumulation and home-price gains, may present alternatives to foreclosure for the millions of distressed homeowners affected by this unfortunate pandemic and economic crisis,” Walsh said.