The U.S. mortgage market is finally turning a corner on delinquency rates.
The nation’s overall delinquency rate, meaning residential mortgages 30 days or more delinquent including those in foreclosure, was 4.7% for April 2021. Compared with April 2020, which experienced a 6.1% overall delinquency rate, a 1.4-percentage point year-over-year decrease occurred in April 2021.
This overall delinquency rate change represents the first year-over-year decrease and the lowest overall delinquency rate since the onset of the pandemic and 2020 recession, according to CoreLogic.
Although the overall delinquency rate is lower, the serious delinquency rate – mortgages 90+ days past due – are still rising.
Mortgage delinquency rates in April 2021 were:
1.0% for early-stage delinquencies, down from 4.2% a year earlier when delinquencies first spiked;
0.3% for 60-to-89-day delinquencies, down from 0.7% a year earlier; and
3.3% for 90+ day delinquencies, up from 1.2% a year earlier.
Here in California, 7.4% of mortgaged homeowners report being behind on their mortgage payment as of July 2021, according to the latest U.S. Census Bureau Household Pulse Data.
90+ day delinquencies rising
Despite overall delinquencies falling, delinquent homeowners are falling further behind on payments, casting doubt they will be able to catch up or resume payments without major intervention.
The nationwide foreclosure moratorium is scheduled to expire July 31, 2021. Homeowners unable to become current by the expiration date may be able to enter a forbearance program. The enrollment period for forbearance programs will remain open through September 30, 2021. To request mortgage forbearance, homeowners are advised to contact their servicer.
As of July 11, 2021, 3.5% of mortgages or 1.75 million homeowners are in a forbearance plan, according to the Mortgage Bankers Association (MBA).
Additional grace periods have been proposed by the Consumer Financial Protection Bureau (CFPB) to prepare for the onslaught of homeowners exiting forbearance when the foreclosure moratorium is lifted in the latter half of 2021. Mortgage servicers are thus limited from initiating foreclosure for all mortgages secured by a principal residence until after December 31, 2021, according to the CFPB’s final rules published June 28, 2021.
With California jobs still down 1.4 million from the pre-recession December 2019 peak, many homeowners have no ability to pay their mortgages. [See RPI e-book Real Estate Economics Chapter 1.2]
Most delinquencies won’t be cured until:
homes are sold off through forced sales; or
servicers work with homeowners to grant loan modifications.
Today’s delinquent mortgages are akin to a shadow inventory of future distressed sales. Though not yet tangible in the market, they will eventually be added to inventory as the foreclosure moratorium, forbearance programs and grace periods expire.
Expect an influx of inventory heading into 2022, to drag down home prices. The economic recovery won’t occur until a significant jobs recovery is underway, a situation not likely to occur until 2024-2025. However, this timeline is dependent upon government intervention to stimulate job creation and further extensions of the foreclosure moratorium.