Overall delinquencies drop despite uptick in short-term distress

Seasonally-adjusted delinquencies tracked by the Mortgage Bankers Association set another record low in the second quarter even though a separate monthly study showed payments late by 30-to-59 days rose.

The number of borrowers with short-term delinquencies rose to 232,253 from 229,462 in May, according to the Federal Housing Finance Agency.

Despite this, the overall seasonally-adjusted delinquency rate tracked by the Mortgage Bankers Association dropped to yet another survey-record low between April and June to 3.64%. The MBA considers any payment not made according to original loan terms to be late.

The two reports highlight the question of how much high employment and wage growth can do to sustain loan performance as pandemic relief gets rolled back, interest rates increase and consumer costs rise.

The MBA doesn’t expect significant deterioration in loan performance absent excessive cooling in housing or a significant rise in the overall unemployment rate. Total unemployment so far has remained low despite heavy mortgage layoffs linked to rate-driven declines in origination units.

While some servicers expect acceleration in foreclosure activity this year with the rollback of pandemic relief and deterioration in the performance of forbearance exits, they generally think current high home equity levels created by two banner years for the housing industry will limit it.

“Foreclosure inventory levels and foreclosure starts remain well below historical averages for the survey – a strong indication that servicers are able to help delinquent borrowers find alternatives,” said Marina Walsh, the MBA’s vice president of industry analysis, in a press release.