Yves here. Delinquencies on conventional mortgages (Fannie and Freddie, which constitute the overwhelming majority of mortgage loans) are at 2012 levels, which is elevated but not crisis level. Nevertheless, Wolf is correct to point out that the rise is unprecedented and strongly suggests that things will get markedly worse before they get better.
Many of Wolf’s readers marveled at how the grim mortgage numbers were at odds with robust homebuilding (which Wolf had highlighted via a Bloomberg screenshot and readers confirmed) and major renovations. Chalk it up to a two-tier economy. I wish I had time to look at the average mortgage size for the delinquencies. It’s not hard to imagine that they skew towards smaller mortgages, which suggests homes in less desirable communities. Put it another way: if you had a home you couldn’t afford to keep in a hot market, now would be the time to sell.
The mortgage delinquency-and-forbearance mess keeps getting messier – in record-setting ways. At the same time, the record-low mortgage rates continue to push certain other segments of the housing industry toward ever greater exuberance. That contradiction became humorously obvious on the Bloomberg News Economics front page, where side-by-side these two headlines appeared:
The overall delinquency rate for mortgages on one-to-four-unit residential properties soared by nearly 4 percentage points (386 basis points) during the second quarter, and by June 30 reached 8.22% (seasonally adjusted), the highest in nine years, according to the Mortgage Bankers Association’s National Delinquency Survey.
This nearly 4-percentage point jump in the overall delinquency rate was the largest in the history of MBA’s survey going back to 1979.
Delinquencies started soaring in April. A month ago, CoreLogic had reported that the percentage of mortgages entering the early stages of delinquencies — from 0 days to 30 days delinquent — had spiked phenomenally in April beyond all prior records. What we’re seeing now is that many of these mortgages are becoming more seriously delinquent. This shows up in the stages of delinquencies, according to the MBA today. At the end of June:
- The 30-day delinquency rate fell by 33 basis points to 2.34%
- The 60-day delinquency rate rose by 138 basis points to 2.15%, the highest since the survey began in 1979.
- The 90-day delinquency rate jumped by 279 basis points to 3.72%, the highest since Q3 2010
The delinquency rate of FHA mortgages jumped by nearly 6 percentage points (596 basis points), the biggest jump in survey history (since 1979), to a delinquency rate of 15.65%, the highest delinquency rate in survey history.
The delinquency rate of VA mortgages jumped by 340 basis points to 8.05%, the highest since Q3 2009.
The delinquency rate of conventional mortgages jumped by 352 basis points, to 6.68%, the highest rate since Q2 2012.
Delinquency rates here include mortgages that were already at least one month delinquent before they entered into a forbearance program. So these mortgages are still delinquent, and the borrower has stopped making payments before entering into forbearance, but the lender has agreed to not pursue its legal rights for the agreed-upon period of forbearance.
Instead of the borrower either catching up, or the mortgage going into foreclosure, the mortgage is put on ice during forbearance. The borrower doesn’t need to make payments. And the lender, after putting the delinquent mortgage into forbearance, may no longer consider the mortgage delinquent, and may therefore still show the mortgages as “performing,” and may still show interest income from it, though no one is making payments.
There are now 4.2 million mortgages in forbearance, according to estimates by the MBA. Meaning 4.2 million homeowners have stopped making payments, in addition to the homeowners that have stopped making payments but are not in forbearance programs.
The delinquency rates here do not include mortgages that have undertaken the final steps: moving into foreclosure. But the current trend for lenders is to move mortgages into forbearance and put them on ice for as long as possible – “extend and pretend” – rather than foreclosing on the property.
The states with the biggest increases in delinquency rates at the end of June compared to the end of March were:
- New Jersey: +628 basis points
- Nevada: +600 basis points
- New York: +575 basis points
- Florida: +569 basis points
- Hawaii: +525 basis points
Last week, CoreLogic released a report that showed the 30-plus day delinquency rates in the 10 largest metropolitan statistical areas through May. So this lags by one month the MBA’s report, but provides insights by metros. These delinquency rates at the end of May ranged from 4.9% for the San Francisco metro, to 13.9% for the Miami metro. This data also includes mortgages that were delinquent before they entered forbearance (chart via CoreLogic):
Other smaller metros got hit hard too, with the sharpest increases in metros that are dependent on tourism – such as Kahului, HI, and Las Vegas, NV – and metros in the oil patch – such as Odessa, TX. And Houston, in terms of an oil-patch metro with a massive delinquency problem, is already on the list above, number 4 in the chart, with a rate of just around 10%, just below Las Vegas.
This mess playing out in the mortgage market has been largely swept under the rug of widespread, government-supported forbearance programs – to where no one really knows what will happen to those mortgages when these forbearance programs end. And the exuberance in other parts of the real estate industry, such as with homebuilders, and even with mortgage brokers and mortgage lenders that arrange refi and purchase mortgages, is a contradiction to what is going on with these swept-under-rug delinquencies that will eventually come to a head.