First-time default rates were stable or lower in September

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First-time mortgage default rates in September continued to stabilize or drop after a rise earlier this year.

Loans in first position showed stability, reprising August’s 0.42% default rate, according to data from Standard & Poor’s Dow Jones Indices and Experian. The number for second liens fell to 0.34% in September from 0.44% the previous month.

The numbers contrast other loan performance statistics that show payments that have been late for less than 90 days have been creeping up a little, and that the redefault rate of pandemic era loans has been rising.

Loans with new, near-term distress may be slow to go into default because the strain from rising consumer costs has been offset to some degree by the slow withdrawal of COVID-19 relief, some of which remains available or could be converted into a more permanent form of loss mitigation.

Forborne payments, for example, are available to some borrowers as an option, and being used.

“The overall number of loans in forbearance dropped in September, but the pace of forbearance exits slowed to a new survey low and new forbearance requests continued to come in,” Marina Walsh, the Mortgage Bankers Association’s vice president of industry analysis, noted in the trade group’s Loan Monitoring Survey report for September.

That said, only 0.69% of mortgages in servicers’ portfolios were in forbearance at the end of September, down from 0.72% the previous month, according to the latest MBA report, which was released earlier this week.

While they were lower in the near term, mortgage default rates in September were higher than a year ago suggesting loss mitigation options have been exhausted for some loans. Twelve months prior, the default rate for first mortgages was 0.27%, and it was 0.26% in the second lien sector.