Findings detailed in the Mortgage Bankers Association’s (MBA) National Delinquency Survey for the third quarter of 2017 indicate that the rate of delinquencies increased for all mortgage loan types from the second quarter. Hurricanes Harvey and Irma are believed to have played a significant role in that fact.
The results indicate that delinquencies on one-to-four-unit residential properties increased to a seasonally adjusted 4.88 percent in the third quarter, an increase of 64 basis points from the second quarter. That rate is 36 basis points higher than the third quarter of 2016.
The delinquency rate on loans insured by the Federal Housing Administration (FHA) saw the largest quarter-over-quarter increase in the survey’s history – 9.4 percent from 7.94 percent, an uptick of 146 basis points.
The delinquency rate for loans provided through the Veterans Administration (VA) jumped to 4.24 percent from 3.72 percent, a 52-basis-point increase, and the rate of conventional loan delinquencies rose to 3.97 percent from 3.47 percent, an increase of 50 basis points.
MBA Vice President of Industry Analysis Marina Walsh provided commentary on the survey results in a press release. She noted that the 30-day delinquency rate accounted for 50 basis points of the total variance from the previous quarter, and that recent severe weather events had a major impact on delinquency rates across all loan types.
“Hurricanes Harvey, Irma and Maria caused disruptions and destruction in numerous states,” Walsh said. “Florida, Texas, neighboring states, as well as devastated Puerto Rico, saw substantial increases in their past due rates. While forbearance is in place for many borrowers affected by these storms, our survey asks servicers to report these loans as delinquent if the payment was not made based on the original terms of the mortgage regardless of any forbearance plans in place.”
Based on statistics in the wake of previous major storms, such as Hurricane Katrina in 2005, Walsh noted that the effects of those storms could influence data on delinquencies and foreclosure starts for a few more quarters.
“It will likely take about three or four more quarters for the effects of the most recent hurricanes on the survey results to dissipate,” Walsh said. “That said, we see loan performance as still healthy and strong, supported by a positive employment and wage outlook. Thus far in 2017, job growth is averaging 169,000 jobs per month, unemployment rate has decreased from 4.8 to 4.1 percent, and wage growth is 3.8 percent on a year over year basis.”
She noted that the serious delinquency rate changed relatively little in the third quarter, rising only three basis points and was down 44 basis points from the previous year. Foreclosure starts also fell slightly, declining one basis point from the second quarter.
“In future surveys, we may see a temporary drop in foreclosure starts in hurricane-impacted states due to storm-related foreclosure moratoria, as was seen during Hurricane Katrina in 2005,” she added.
In addition to the storms, other factors that contributed to the overall rise in delinquency rates, particularly in states not directly impacted by the hurricanes, were less obvious. Walsh noted how simple variables, such as the last day of the month falling on a weekend, can play a role in causing delinquent payments. Also, the fact that delinquency rates were so low in the second quarter make the third-quarter increase seem more significant than it would otherwise.
“First, there were timing issues associated with the last day of [September] being a Saturday,” Walsh said. “Processing for mortgage payments made over the weekend did not occur until Monday, Oct. 2 and thus these mortgage payments were identified as 30-days delinquent per NDS definitions.
“Second, delinquency rates were already at historic lows in the second quarter of 2017,” she continued. “The FHA and VA delinquency rates were at their lowest levels since 1996 and 1979 respectively, while the conventional delinquency rate reached its lowest level since 2005. It would not be unexpected for delinquencies to eventually increase from these levels.”
Walsh also noted that seasonality, rising loan-to-value and debt-to-income ratios for certain products, normal loan aging and declining average credit scores on new FHA endorsements since 2014 are other factors to be considered when analyzing delinquency rates.
The percentage of foreclosure starts decreased by one basis point during the third quarter to 0.25 percent, which is five basis points lower than the year prior.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure, the survey states. The percentage of loans in the foreclosure process at the end of the third quarter was 1.23 percent, a reduction of six basis points from the previous quarter and 32 basis points from the previous year.
The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 2.52 percent in the third quarter, up three basis points from the previous quarter, but 44 basis points lower than one year ago.