Mortgage delinquencies fall to record low in 3Q

The current U.S. economic turmoil has yet to affect mortgage loan delinquencies in the third quarter as the overall rate continued to trend down to another all-time low, the Mortgage Bankers Association found.

On a seasonally adjusted basis, 3.45% of all outstanding mortgages were late on their payments during the period, the MBA’s National Delinquency Survey reported. This includes loans in forbearance for which the borrower did not make a scheduled payment.

This is 19 basis points below the previous low of 3.64% for the second quarter and 143 basis points less than the 4.88% rate for the third quarter of 2021.

“Foreclosure starts and loans in the process of foreclosure also dropped in the third quarter to levels further below their historical averages,” said Marina Walsh, vice president of industry analysis, in a press release. “The relatively small number of seriously delinquent homeowners are working with their mortgage servicers to find foreclosure alternatives, including loan workouts that allow for home retention.”

Compared with the second quarter, the 30-to-59 day delinquency rate remained unchanged at 1.66%. However, the 60-to-89 day delinquency rate increased 4 basis points to 0.53%. But the rate for seriously delinquent loans, those that had made a payment in 90 days or more, decreased 22 basis points to 1.27%.

The percentage of loans in the foreclosure process at the end of the third quarter was 0.56%, down 3 basis points from the second quarter. But this was 10 basis points higher than one year ago. Foreclosure starts were down from the prior quarter by 3 basis points to 0.15% of all mortgages.

However, the MBA’s most recent economic forecast predicted that the U.S. is likely to enter a recession in the first half of 2023. It expects unemployment, one of the drivers of mortgage delinquencies, to reach 5.5%, almost 200 basis points higher than the estimated 3.7% rate for October.

“The delinquency rate will likely increase in upcoming quarters from its current record low because of both the anticipated uptick in unemployment and the effect of natural disasters like Hurricane Ian in Florida, South Carolina, and other states, which will likely result in an increase in forbearance agreements to allow impacted homeowners to get back on their feet,” Walsh said.

Speaking of Hurricane Ian, based on the share of mortgage payments made through Oct. 19, mortgage borrowers directly in the storm’s path were nearly seven times more likely to become past due than those in FEMA-declared counties outside the storm’s path, Black Knight found. If those deficits held true through the end of October, approximately 20,000 to 25,000 borrowers in Florida can be expected to become delinquent as a direct result of the storm.