Delinquency Rates Jump!

Mortgage delinquencies soared at a record pace in April. Well, things have gotten even worse since.

The overall delinquency rate for mortgages on one-to-four-unit residential properties spiked by nearly 4% in Q2, reaching 8.22% by June 30, according to the Mortgage Bankers Association’s National Delinquency Survey. The jump in the delinquency rate was the biggest quarterly rise in the history of the survey.

The biggest rises in delinquencies reported in May were concentrated in early stages – 30 to 60 days past due. The MBA numbers show a big spike in later-stage delinquencies.

·        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 on government-backed FHA mortgages spiked by 596 basis points to 15.65% – the highest rate since the MBA survey began in 1979.  The VA delinquency rate increased by 340 basis points to 8.05% over the previous quarter, the highest rate since the third quarter of 2009. Delinquencies on conventional loans increased 352 basis points to 6.68% over the previous quarter, the highest rate since Q3 2012.

The seriously delinquent rate — the percentage of loans that are 90 days or more past due or in the process of foreclosure — was 4.26%. That’s the highest rate since Q4 2014. It increased by 259 basis points from last quarter and increased by 231 basis points from last year.

“The COVID-19 pandemic’s effects on some homeowners’ ability to make their mortgage payments could not be more apparent,” MBA’s Vice President of Industry Analysis Marina Walsh said, adding that “delinquencies are likely to stay at elevated levels for the foreseeable future.”

The MBA delinquency numbers include the estimated 4.2 million loans in forbearance programs if the loan was at least 1-month delinquent when entering the program, but they do not include loans that have gone into foreclosure.

Meanwhile, artificially low interest rates thanks to the Federal Reserve have pushed mortgage rates to record lows. This has created what Wolf Street called “exuberance” in other segments of the housing industry. Wolf Street pointed out the contradiction we see in housing with side-by-side headlines on Bloomberg.

Wolf Street summed up the situation.

“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.”

If a large number of these delinquent loans eventually go into default, it will have a significant trickle-down effect on the economy, putting significant stress on banks and the financial sector. We saw the results of a mortgage meltdown in 2008.

Even if we don’t eventually experience a major financial shock due to people’s inability to pay their mortgages, the high delinquency rates drive another stake through hopes of a quick economic recovery. Even if jobs quickly come back (and that seems unlikely given the number of temporary layoffs becoming permanent), it will take a long time for people to catch up on their past-due mortgage payments.

Meanwhile, businesses are shutting down and bankruptcies are at a 10-year high. Americans owe billions in back rent. There is a rising number of over-leveraged zombie companies. And a tsunami of defaults and bankruptcies are on the horizon.

In effect, we’re witnessing a permanent contraction in the US economy. That means that even if we deal with the coronavirus, the economy isn’t going to simply spring back to what it was before. And the ugly truth is it wasn’t that great before the pandemic. In fact, it was a big, fat ugly bubble. Now we’re watching the air slowly come out.

And yet, most of the mainstream still seems convinced that with a little more stimulus and a coronavirus vaccine, everything will be just fine. But as we’ve said over and over, curing the coronavirus won’t cure the economy. And the government “help” is only making things worse in the long-run.