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.


  • by Jerry Quigley | 12/1/2015 10:09:24 AM

    The delinquency rates/percentages are eye popping!
    In Canada government insured mortgages on average show 24bps total delinquency - miniscule in comparison.

  • by Richard S | 12/1/2015 10:46:21 AM

    Post 2008, we live in a different world. In the past, borrowers would avoid foreclosure at all costs and it was a measure of last resort. Now, a moral compass has changed. Everyone knows someone who had a foreclosure. These people did not burst into flames and there is no longer a stigma to having ones name posted in the public records. It is well known that a new mortgage can be obtained in just a few years following a foreclosure. As a matter of fact, public opinion has changed in that a person is now a victim of foreclosure and not someone who failed to make payments as agreed. Borrowers will now walk away from a house rather than a car, which is a new phenomenon. As long as their is divorce, depression, alcoholism, drug addiction, death, illness, incarceration, job loss....there will always be some level of foreclosures. However, the new variable is the integrity of the buyer. Gone are the days where a mortgage was the highest priority, something to avoid at all costs. Foreclosure default has become socially acceptable and due to the lack of long term consequences, is more desirable than bankruptcy. Until there is a tax penalty, deficiency judgement or other long term consequences, there is little deterrent to foreclosure and this new attitude will limit credit to those who need it most. No matter what has happened in the past, a borrower must take personal responsibility and not borrower more than they can afford, even if they are allowed to. There used to be a common term, Starter Home. It was a basic home that put a roof over your head while a buyer would build credit, increase their income and build equity. A homeowner would then sell the starter home and move up, leveraging the equity from the starter home after having this new discipline and experience of managing a home. It is important for everyone to live within their means and borrow less than they can afford at any moment. Life has its up and downs and we must always be prepared with at least 6 months cash reserves. This is not possible when we are over extended.

  • by Scott | 12/1/2015 5:26:07 PM

    I would very much like to see where you come up with 23% more likely to default on non bank FHA mortgages.
    Every FHA mortgage is underwriten by a bank, it once again appears in another falsely worded artlicle that Brokers are to blame for the default rate.
    That is another false statement.


Should CFPB have more supervision over credit agencies?