Delinquency Recovery Interrupted by Natural Disasters

The ongoing improvement in mortgage
performance hit a slight snag in the third quarter of 2018, one that appears to
be disaster related. 
The Mortgage
Bankers Association (MBA) said the National Delinquency Survey found the
national delinquency rate grew by 11 basis points (bps) from the second quarter
to 4.47 percent.  This was, however an
improvement of 41 bps from the same quarter in 2017.  Foreclosure starts continued to decline,
dropping 1 bp quarter-over-quarter to 0.23 percent, its lowest level since, not
just the recession, but 1985.

All loan types saw increased delinquencies
for the quarter but were down year-over-year.  For the quarter, the rate for conventional loans
was also up 11 bps to 3.56 percent while the FHA rate rose 26 bps and the VA
rate 19 bps to 8.96 percent and 4.16 percent.  Those three rates were the result of annual
declines of 41, 44, and 8 bps respectively.

“Despite the small
uptick this quarter, the healthy economy is overall supporting low mortgage
delinquencies and foreclosure inventories,” said Marina Walsh, Vice President
of Industry Analysis at MBA. “Unemployment is at its lowest level since 1969,
wages have grown 3.1 percent year-over-year – the biggest jump in almost a
decade – and job growth is averaging over 212,000 jobs per month thus far.”

Walsh notes that
natural disasters are a major factor in determining whether borrowers make
timely mortgage payments. Specifically, there were significant delinquency
increases in states adversely impacted by Hurricane Florence and Tropical Storm
Gordon, including North Carolina, South Carolina, Mississippi, Arkansas and
Alabama. Hurricane Michael, which made landfall after the survey reporting
period and caused significant damage in the Florida Panhandle and Southern
Georgia, will not be reflected until MBA’s fourth quarter survey. Walsh
believes it will likely take several quarters for the most recent storms’
effects on the survey results to dissipate.

“The impact of the
August and September 2017 hurricanes on several states, particularly Texas and
Florida, continues to retreat,” said Walsh. “Primarily because of the declining
effects of last fall’s hurricane-related spike, the overall mortgage
delinquency rate in the third quarter was down 41 basis points on a
year-over-year basis.”

The 30-day delinquency
rate increased
by 20 bps to 2.51 percent and the 60-day tick up to 0.77 from
0.75 percent. Long term delinquencies were down however; the 90-day bucket
declined by 11 bps to 1.18 percent. These figures do not include loans in the process
of foreclosure which represented 0.99 percent of all mortgages in the third
quarter, down 6 bps from the second quarter and 24 from a year earlier. It was
the lowest rate for the foreclosure inventory since early 2006.

The five states with
the largest increases in non-seasonally-adjusted mortgage delinquency rates
over the previous quarter were all impacted by the September 2018 storms: North
Carolina (80 basis points), South Carolina (77 basis points), Mississippi (77
basis points), Arkansas (63 basis points) and Alabama (50 basis points).  

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