NAHB - Michael Neal - 21 February 2017
Serious delinquency rates on 1-4 family mortgages rose over the 4th quarter of 2016 from the previous quarter. According to the National Delinquency Survey (NDS) released by the Mortgage Bankers’ Association (MBA), the proportion of mortgages seriously delinquent, those that are 90 or more days delinquent or starting the foreclosure process, rose 17 basis points to 3.13 percent. Despite the increase, the current rate of serious delinquency remains closer to its 10-year low than its recession-era peak.
Serious delinquency rates on conventional, FHA, and VA loans all recorded a quarterly increase. As illustrated by the graph above, the rate of serious delinquency in all of these loan types has declined significantly from the recession-related peak levels. However, the 18 basis point increase on seriously delinquent conventional loans to 2.88 percent at the end of 2016, ensured the rate had not returned to its 2005-2006 average level of 1.6 percent.
Serious delinquency rates also climbed in the 4th quarter for government (VA and FHA) loans. The serious delinquency rate on VA loans increased 11 basis points to 2.40 while the serious delinquency rate on FHA mortgages rose 18 basis points to 4.56 percent. Despite these increases over the quarter, serious delinquency rates on government loans remain below their average levels in the years leading up to the recession.
The increase in the serious delinquency rate on FHA mortgages has drawn additional attention because of the recent decision made by the new Administration to suspend the 25 basis point cut to the annual mortgage insurance premium (MIP) by the previous Administration. As a result, the annual MIP remains at 0.85 percent, rather than 0.60 percent.
Previous analysis highlighted that the decline in new 90 or more day delinquencies on FHA mortgages reflected an improvement in the labor market. Declines in “Unemployed” and “Reduction in Income” accounted for most of the overall drop in new 90 or more day delinquencies. The share of new delinquencies attributable to unemployment or income reduction fell over most of the second half of 2016 as well.
The chart above shows the distribution of new 90 or more day delinquencies by reason. This information is collected by FHA and published in its monthly report on the Single-family Loan Performance Trends. Over the 4th quarter-to-date, ending in November, there has been a decrease in the share of new delinquencies due to unemployment or income reduction. Between Q3 2016 and November 2016, the shares attributable to excessive debt obligations or death or marital problems also fell. The most significant increase has been in the share marked Other, which covers a myriad of reasons including abandonment of property, distant employment transfer, neighborhood problems, property problems, inability to sell or rent property, military service, business failure, casualty loss, energy-environment cost, servicing problems, payment adjustment, payment dispute, and transfer of ownership pending fraud and incarceration.