In its quarterly National Delinquency Survey, the Mortgage Bankers Association reported that 3.11% of 1-4 family mortgages were seriously delinquent in the second quarter of 2016. Measured on a not seasonally adjusted basis, the rate of serious delinquency, which includes both mortgages that are 90 or more days past due and mortgages in foreclosure, was 0.84 percentage point less than the 3.95% recorded in the second quarter of 2015. Since reaching a peak of 9.7% in the fourth quarter of 2009, the serious delinquency rate has experienced a steady decline. The current rate of serious delinquency was last seen in 2007.
The decline in the overall serious delinquency rate partly reflects a falling rate on conventional mortgages. Conventional mortgages include both prime and subprime mortgages. In the fourth quarter of 2009, the share of conventional mortgages that were considered seriously delinquent reached its zenith at 9.8%. Since then, the proportion of conventional mortgages considered seriously delinquent has steadily fallen, reaching 2.9%. However, despite the long decline, the serious delinquency rate on conventional mortgages remains above its 2005-2006 average, 1.6%.
The decrease in the serious delinquency rate overall also reflects a drop in the rate on FHA mortgages. Although the rate of serious delinquency on FHA-insured mortgages also peaked in the fourth quarter of 2009, it did not begin to record a sustained decline until 2012. As of the second quarter of 2016, the serious delinquency rate on government mortgages was 4.4%, 1.5 percentage points greater than the serious delinquency rate on conventional mortgages. Although the serious delinquency rate on FHA-insured mortgages is higher than the rate on conventional mortgage, it is lower than its average level between 2005 and 2008.
The serious delinquency rate has been dropping partly because the number of new 90 or more day delinquent mortgages has also been falling. According to the most recent version of the Federal Housing Administration’sSingle-family Loan Performance Trends, the number of new 90 or more day delinquencies has been falling since 2012, largely reflecting a decrease in the number of new delinquencies 90 or more days because of unemployment or income reduction.
As illustrated by Figure 2 below, in fiscal year 2012, approximately 233,000 of the roughly 500,000 loans that were delinquent 90 or more days reached that stage because the borrower experienced unemployment or an income reduction*. By 2015, the number of new FHA-insured mortgages that were 90 or more days delinquent fell to 136,000. Meanwhile, the number of FHA loans delinquent 90 or more days due to excessive obligations, the second largest category, fell by 15% between 2012 and 2015, but number of these delinquencies in each year between 2013 and 2015 has remained near its 2011 level. The decline in the new number of borrowers delinquent 90 or more days due to unemployment or income reduction over the 2012 to 2015 time period accounted for 65% of the total decrease in the number of new FHA-insured mortgages 90 or more days delinquent over this same period.
* This document from the Department of Housing and Urban Development provides definitions of each category.
Unemployment – The delinquency is attributable to a reduction in income resulting from the principal mortgagor having lost his or her job.
Income Reduction – The delinquency is attributable to a reduction in the mortgagor’s income, such as a garnishment of wages, a change to a lower paying job, reduced commissions or overtime pay, loss of a part-time job, etc.
Death of Principal Borrower – The delinquency is attributable to the death of the principal mortgagor.
Illness of Principal Borrower – The delinquency is attributable to a prolonged illness that keeps the principal mortgagor from working and generating income.
Excessive Obligations – The delinquency is attributable to the mortgagors(s) having incurred excessive debts (either in a single instance or as a matter of habit) that prevent him or her from making payments on both those debts and the mortgage debt.
No Contact – Should be used rarely for any 90 day or more delinquency. Indicates that the reason for delinquency cannot be ascertained because the mortgagor cannot be located or has not responded to the servicer’s inquiries.