Mortgage delinquency rates – lowest since 1979

MBA economists surprised by one- to four-unit residential properties' performance

Mortgage delinquency rates – lowest since 1979

With historical data at their fingertips and institutional knowledge in their memory banks, economists aren’t often surprised by economic shifts. But the latest report on certain residential property delinquencies – the steepest drop for any first quarter since 1979 – raised some eyebrows.

The delinquency rate for mortgage loans on one- to four-unit residential properties decreased to a seasonally adjusted rate of 3.56% of all loans outstanding at the end of the first quarter of 2023, according to the newly released Mortgage Bankers Association’s (MBA) National Delinquency Survey.

The delinquency rate was down 40 basis points from the fourth quarter of 2022 and down 55 basis points from one year ago, according to the report. The percentage of loans on which foreclosure actions were started in the first quarter rose by two basis points to 0.16%, economists found.

In an interview with Mortgage Professional America, the Mortgage Bankers Association’s vice president of Industry Analysis, Marina Walsh, expressed surprise at the findings. She said the mortgage delinquency rate fell to its lowest level for any first quarter since the MBA’s survey began in 1979, and was the second lowest quarterly rate overall – just 11 basis points above the survey low in the third quarter of 2022.

It's all about the jobs market

She pointed to one major factor for the steep decline: The robust jobs market.

“This is the second-lowest level, and we were surprised with the resilient jobs market,” Walsh told MPA. “Right now delinquencies and the unemployment rate are tracking very close to one another. They’ve tracked close to one another since about 2008. Just like we saw in April, the unemployment rate go down to 4.9%, sure enough we saw this drop. Our expectation was that delinquencies would start going up and we saw a reverse of that.”

She added: “Mortgage delinquencies and the unemployment rate continue to track each other closely, with the unemployment rate in April falling back to the 54-year low of 3.4% set in January.”

Even with seasonally adjusted allowances, she said, the decline was impressive. “Even though we seasonally adjusted for the National Delinquencies Survey data, in the first quarter in general we always see better performance because of tax refunds. That does make a difference. The seasonal adjustments in COVID are a little bit quirky but we usually do see a bump up regardless. So that could be part of it, but part of it is just this very resilient jobs market.”

Yet she cautioned the decline in delinquencies is likely short-lived: “We’re still forecasting for an economic slowdown, a mild recession, in the second half of the year,” she said. “That’s been pushed back a bit, but between hospitality and services jobs, we’re still seeing strong results in terms of the jobs market.”

She reiterated that a change is afoot: “If you look at our MBA forecast, we anticipate the unemployment rate is going up, and should end the year in 2023 at about 4.9%. So we are anticipating that the unemployment rate is going up, and with that unemployment rate, we will see an increase in delinquencies.”

Until then, the jobs market continues to boom across the board: “Consistent with the resilient job market, the performance of existing mortgages is exceeding expectations. Across all states, there was an improvement in the first quarter compared to one year ago. Year-over-year delinquencies for all product types – FHA, VA, and conventional – were also down.” 

Loans in forbearance fall

A less dramatic drop was seen in the total number of loans now in forbearance. In a separate report – the MBA’s monthly Loan Monitoring Survey – the total number of loans now in forbearance decreased by four basis points from 0.55% of servicers’ portfolio volume in the prior month to 0.51% as of April 30.

According to MBA’s estimate, 255,000 homeowners are in forbearance plans. Mortgage servicers have provided forbearance to approximately 7.8 million borrowers since April 2020, the report found. Moreover, in April 2023, the share of Fannie Mae and Freddie Mac loans in forbearance decreased two basis points to 0.24%.

“While the number of loans in forbearance continues to dwindle, there was some deterioration in the performance of post-forbearance workouts,” Walsh said. “About three out of four borrowers are remaining current on their post-forbearance workouts, but this is down from the average of four out of five borrowers that was relatively consistent in 2022 and into 2023.” 

Added Walsh, “Overall servicing portfolios remain healthy, and some of the worsening monthly performance can be attributed to seasonal factors such as tax refunds that pushed up the March results and then normalized in April. MBA’s forecast calls for an economic slowdown and an increase in unemployment later this year and into 2024, which will impact loan performance.”     

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