While overall mortgage delinquencies
declined by 0.03 percent from July to August, Black Knight’s newest Mortgage
Monitor
reveals some disquieting information about mortgage delinquencies emerging
out of the pandemic’s financial upheaval. The company, however, says there are also
potentially mediating factors.

The overall delinquency rate in August was
6.88 percent 3.6 percent above the pre-pandemic level, but down 0.03 percent
month-over-month. The July to August change was considerably smaller than the
0.85 aggregate change in June and July, indicating the rate of improvement may be
slowing. This does not, however, mean that more borrowers falling into
financial difficulty, but rather that the problem is becoming persistent.

The share of borrowers with only one
missed payment was already below pre-pandemic levels in July and in August that
number fell again. The number of loans in the 30- to 60-days past due bucket dropped
by other 9.0 percent. At the same time, serious delinquencies, loans 90 or more
days past due, increased by 5 percent and have risen in each of the past five months.

 

 

Black Knight said the volume of new
delinquencies, loans transitioning from current to 30-days past due, rose from
419,000 in July to 445,000 in August, and the number of loans rolling from 30
to 60 and 60 to 90 days declined. But fewer mortgages were cured. The number of
homeowners who brought their mortgages current during the month decreased from
710,000 in July to 421,000 in August, a -40 percent change. This decline was
apparent in both early stage and serious delinquencies although the company says
this may be partially due to a smaller number of forbearance expirations during
the month.

 

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Black Knight Data & Analytics
President Ben Graboske said, “When COVID-19 first began to impact the mortgage
and housing markets, there was no easy historical precedent by which to gauge
the fallout, so we looked to mortgage performance in the wake of recent
recessions and natural disasters for clues. And for the first several months of
the pandemic, the performance impact of COVID tracked relatively closely to
that of major hurricanes.”

That, however, has changed and the trend
lines are diverging. Looking now at data recording the
current three-month rate of improvement since the peak in May, there is a difference
from that seen in the natural disaster trendlines.
Carrying that three-month
rate forward shows that delinquencies may not return to pre-pandemic levels for
19 months, until March 2022.  

 

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When the first wave of
COVID-19-related forbearance plans reach the 12-month expiration period, the
longest allowed by the CARES Act, in March 2021, the current pattern suggests
there would still be a million excess delinquencies. Given that early-stage
delinquencies have already fallen below pre-pandemic levels, the bulk of those
delinquencies will be seriously so. While serious delinquencies tend to peak
3-4 months after a natural disaster event, there has been no such peak as yet, instead
there have been five months of increases. The company says there is one bright
spot: “August’s increase in serious delinquencies was the mildest of any of those
five months, which – combined with the shrinking inflow of new delinquencies -
suggests we could be nearing the peak. But as with so much these days – it
still remains to be seen.”

Graboske says, “While this may seem
to paint a bleak picture for the future, multiple mitigating factors could help
to reduce any resulting foreclosure wave.
First and foremost, while recovery
has been slow and incremental, the bulk of homeowners who have come out of
forbearance are currently performing on their mortgages.”

Indeed. Of the 6.1 million homeowners
who have been in forbearance at one point or another since the onset of the
pandemic, 2.4 million  or 41 percent have
exited, and of those, 1.8 million are currently back to making their mortgage
payments. Another 363K have paid off their mortgages in full, either through
refinancing or the sale of their home. At present, 267,000 (4 percent) are
still past due but are in an active loss mitigation working with their
servicers to get back to current status. That leaves 54,000 of formerly
forborne homeowners who are past due and not in active loss mitigation. Seventy
70 percent of these were already delinquent in February before the pandemic
began
.

 

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The status of current and former forborne
borrowers varies a bit by loan type. Forty-seven percent of GSE (Fannie Mae and
Freddie Mac) borrowers have exited plans and 35 percent are now performing and
8 percent have paid off their loans. A third of FHA and 31 percent of VA loans are
no longer in plans. Among FHA loans, 21 percent are performing, 7 percent are
past due, and 4 percent are paid in full. Only 19 percent of VA loans are now
performing while 8 percent have been paid off.

 

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Despite the pandemic, most
homeowners continue to pay their mortgages. Through September 22, 88.9 percent
of all first mortgage holders had made their payment which suggests that the
national delinquency rate might fall again in September if the increased
payment activity continues through the end of the month.

 

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Another
mitigating factor in the delinquency situation is the amount of equity that
exists, $6.6 trillion, the most in history. Among borrowers in forbearance,
just 9 percent have less than 10 percent equity in their homes, which offers
both borrowers and lenders multiple options in lieu of foreclosure. Fewer than 1
million homeowners are currently underwater in their mortgages.

Even
when applying distressed valuations to the more than 2.5 million homes either
90 or more days past due or in active foreclosure, Graboske says tappable
equity hit another record high in Q2 2020
as home prices continued to rise
across much of the country. “In total, nearly 45 million homeowners have
tappable equity in their homes, the largest volume ever. The average homeowner
now has nearly $125,000 in tappable equity; an increase of more than $3200 from
last year – also a record. These strong equity positions help to provide a
backstop to elevated delinquency levels and slow recovery from COVID-19-related
impacts.”

These equity positions are unlikely
to erode in the short term. As of the end of July, there were 1.5 million existing
homes for sale, down more than 20 percent from the year prior and the lowest
July month-end number since the housing recovery began in 2012. While home
prices stagnated in May and June, price growth has since recovered in a big
way
, with August’s annual home price growth rate at 11.5 percent, the highest
since mid-2013. Early numbers from September suggest record highs could be seen
in coming months.

And, speaking of rising home prices,
Black Knight says low interest rates continue to provide a counterweight to
those numbers. As of September, it took 19.4 percent of the median household
income to make a monthly mortgage payment on the average priced home. This
assumes a 20 percent downpayment on a mortgage at the prevailing interest rate.
This is 0.4 percent less than the percentage required in August and means
homeownership is the most affordable since October 2016.

 

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Twenty-five of the largest U.S.
markets have the most affordable markets since the beginning of 2018 and for 16
of them the best since 2016. For Baltimore, homes are the most affordable in
Black Knight’s records that date back to 2005.

By Jann Swanson , dated 2020-10-05 09:26:37

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Courtesy of Mortgage News Daily

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