Delinquencies at historic low thanks to home equity gains

Delinquencies dropped to a historic low in January, falling on a year-over-year basis for the 10th month in a row, according to CoreLogic.

Meanwhile, the expiration of federal forbearance protections — although some states put in prohibitions in the final months of 2021 — so far do not seem to be driving a significant increase in serious delinquencies, despite ongoing concerns about the ability of borrowers to repay.

The share of delinquent loans — defined as the borrower being late on payments by 30 days or more — dropped to 3.3% of all mortgages in January, down from 5.6% a year earlier, when forbearance relief was still in place. Numbers decreased across the country and in every phase of delinquency, with loans past due 90 days or more including foreclosures showing the most improvement, falling to a 1.8% share of all loans, as opposed to 3.8% in January 2021.

Early-stage delinquencies — 30 to 59 days past due — accounted for 1.2% of loans, compared with 1.3% in January 2021. The share of mortgages 60 to 89 days overdue fell to 0.3%, down from 0.5% on an annual basis.

The ongoing reduction in distressed loans, even in the wake of the economic uncertainty caused by COVID, can be chalked up to the surge in tappable home equity available to households and a strong job market, according to Frank Nothaft, chief economist at CoreLogic.

“The large rise in home prices — up 19% in January from one year earlier, according to CoreLogic indexes for the U.S. — has built home equity and is an important factor in the continuing low level of foreclosures,” he said in a press release.

Some distressed borrowers with conforming loans received a temporary reprieve earlier this month, when the Federal Housing Finance Agency ordered servicers to pause foreclosure proceedings for those enrolled in the Homeowner Assistance Fund program. The directive is likely to limit any sudden spike in foreclosures. But with millions of consumers just getting back on track with payments, the road ahead for the full year is still uncertain.

“The U.S. may experience an uptick in distressed sales this year as some owners struggle to remain current after forbearance and loan modification,” Nothaft added.

Mortgaged properties at some stage in the foreclosure process came in at 0.2%, inching down from 0.3% one year earlier. While the total number of homes in foreclosure increased on a month-over-month basis according to several benchmarks, their share relative to all outstanding mortgages was flat compared to December.

States with the highest delinquency rates include several affected by Hurricane Ida in September. But like every other state, they recorded a year-over-year decrease. Louisiana had the highest rate of delinquency in January at 6.3%, which was down from 9.2% a year earlier. Mississippi’s rate came in at 5.9% compared to 7.4% in January 2021. New York State had a 5% delinquency rate, down from 8% 12 months earlier.