Delinquency fears warranted?

by Justin da Rosa01 Dec 2015
One advocacy group is calling for more scrutiny around who is obtaining loans, but are those concerns exaggerated?

“I think lending standards are healthy right now,” Steven Balazic, a mortgage specialist with New Penn Financial, told Mortgage Professional America. “Those concerns are a little bit overblown.”

Balazic’s view – and it is likely one shared by many originators across the country – contradicts with a recent LA Times article that argues the resurgence of non-bank lenders have raised delinquency rate concerns.

"The idea that a lot of the folks who benefited during subprime are now back in action calls out for closer scrutiny," said Kevin Stein, associate director of the California Reinvestment Coalition, a fair-lending advocacy group in San Francisco, told the Times.

And it’s true that non-bank lenders are re-entering the mark with a vengeance, and many are offering sub-prime loans.

And those loans are more likely to enter delinquency, according to analysis conducted by the publication:

“A Times analysis of federal loan data shows that FHA mortgages from nonbank lenders are seeing more delinquencies than similar loans from banks,” the article says. “Just 0.9% of FHA-insured loans issued by banks from October 2013 to September of this year were seriously delinquent — several months behind — compared 1.1% of nonbank loans.

“Put another way, nonbank FHA and VA loans are about 23% more likely to go bad than those issued by banks.”
Still, delinquencies as a whole are trending downward.
The delinquency rate on one-to-four unit residential properties fell to a seasonally adjusted rate of 4.99% of all outstanding loans at the end of Q3 – the lowest level seen since Q2 2007.

Additionally, FHA loans – the ones the Times focuses on – continue to drop as well.

"The overall delinquency rate for FHA loans dropped to 8.91 percent in the third quarter from 9.01 percent in the second quarter, as the 90 day or more delinquent category declined by 20 basis points and more than offset an 11 basis point increase in the 30 day delinquency rate,” the MBA said in its report on delinquincies, released in mid-November. “In addition, the FHA foreclosure inventory rate dropped to 2.65 percent in the third quarter, from 2.68 percent in the second quarter and 2.73 percent a year ago.”

It remains to be seen in which direction delinquencies will trend. Have your say in the comments section below.

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