Low foreclosure rates indicate delinquent borrowers are finding alternatives to foreclosure
The delinquency rate for residential mortgage loans has fallen to its lowest level since 1979, even beating out the previous pre-pandemic survey low in 2019.
The Q2 delinquency rate nosedived to a seasonally adjusted rate of 3.64%, down 47 basis points from the previous quarter and 183 basis points below compared to the same period a year ago, according to the Mortgage Bankers Association.
By loan type, the total delinquency rate for conventional loans fell by 39 basis points to 2.64% quarter over quarter – the lowest level in the survey’s history since 2004. The FHA delinquency rate decreased 73 basis points to 8.85%, and the VA delinquency rate decreased by 64 basis points to 4.22% over the quarter.
Marina Walsh, MBA’s vice president of industry analysis, noted that most of the improvement across all product types – FHA, VA, and conventional loans – resulted from a decline in the loans that were 90 days or more delinquent but not in the foreclosure process.
The share of loans that are 90 days or more past due or in the foreclosure process edged down 27 basis points from the first quarter to 2.12% in the second quarter. It was down by 191 basis points from last year.
“Foreclosure inventory levels and foreclosure starts remain well below historical averages for the survey – a strong indication that servicers are able to help delinquent borrowers find alternatives to foreclosure,” Walsh said. “Such alternatives include curing, loan workouts, home sales – with possible equity to spare, or cash-for-keys and deed-in-lieu options.”