Mortgage delinquencies drop to survey-record low

The percentage of home loans with late payments or in foreclosure during December of last year dropped to a low not seen since CoreLogic began tracking delinquency rates in 1999.

The share of mortgages in these categories fell to 3.4% during the month, down from 3.6% in November 2021 and 5.8% in December 2020, according to CoreLogic’s Loan Performance Insights report.

The decline in part reflected the typical year-end lull in foreclosures that occurs due to the winter holidays. But also, it was the final month of temporary regulatory restrictions put in place by the Consumer Financial Protection Bureau to facilitate a transition away from pandemic-related bans.

This record low also comes after an exodus of borrowers from forbearance, in a market in which general U.S. employment has been strong and home equity levels have been high. (While soaring home prices can strain affordability, to date the healthy job market appears to have been strong enough to support mortgage borrowers’ ability to repay, and robust equity levels have given borrowers expanded access to foreclosure alternatives.)

The fact that mortgages underwritten during the pandemic were generally made to borrowers unaffected by hardships played a role as well, said Frank Nothaft, chief economist at CoreLogic, in an interview.

“Mortgage lenders really were very careful with documenting and verifying income in the early months of the pandemic when they were underwriting loans,” he said. “That may very well be contributing as well to these very low 30- and 60-day delinquency rates that we have seen over the last year,” he said.

However, Nothaft noted that economic strength is not equally distributed throughout the United States.

For example, one metropolitan area of Louisiana hit hard by the second largest storm in the state’s history last year, Houma Thibodaux, is experiencing higher levels of distress, he noted.

“The higher serious delinquency rates peaked in Houma toward the end of 2021, reflecting the impact and disruptive effects and damage done by Hurricane Ida,” Nothaft noted.

But all metropolitan areas except Houma experienced at a least a small annual decrease in their mortgage delinquency rates, and even the portion of Louisiana hit particularly hard by the storm saw improvement in loan performance on a consecutive-month basis, according to CoreLogic.

On a national basis, all types of home-loan delinquencies improved year-over-year, the report noted. The share of mortgages that rolled from current to 30 days late, at 0.6%, was down from 0.8% a year ago. Home-loan payments late by 35 to 59 days dropped to 1.2% from 1.4% in December 2020. Mortgage 60 to 89 days past-due fell to 0.3% from 0.5% in the course of the past year. Serious delinquencies, defined as payments late by 90 days or more and loans in foreclosure, declined to 1.9% from 3.9%, but loans in the 90-day bucket are quite as historically low as in the other categories.

“The 30, 60 day and foreclosure rates are at the lowest that we’ve seen in a generation. What’s still elevated is the serious delinquency rate. Even though that’s way down from the peak we saw in 2020, it’s still above pre-pandemic levels,” Nothaft noted.

The overall improvement in these numbers, combined with other positive indicators like decreased property tax payment rates, suggest loan performance was strong across the board in December.

Early indications suggest that 2022’s numbers may not be quite as robust, though. Preliminary data from other sources suggest foreclosures have risen as the year has gotten underway and nearly three-quarters of borrowers in loss mitigation remain delinquent.

“There will be some distressed sales in the marketplace. So we’ll see an uptick in that in 2022,” said Nothaft.

While foreclosures are relatively rare due to high home equity levels and the availability of alternatives, some will occur because a small number of neighborhoods in the country still do have underwater mortgages.

“Even though the number of loans that are in a negative equity position has really dropped substantially, it’s not zero,” Nothaft said.

CoreLogic measures loan performance based on mortgaged homes with first liens and representative foreclosure data from 75% of the market.