Q2 Mortgage Delinquencies Present a Calm Facade, but Traces of ‘Consumer Credit Stress’ Persist
Mortgage Delinquencies Decline Amidst Early Signs of Consumer Credit Dynamics
In a recent unveiling, the Mortgage Bankers Association (MBA) has brought to light the results of its National Delinquency Survey, delving into the second quarter of 2023. This comprehensive survey has revealed that the delinquency rate for mortgage loans on one- to four-unit residential properties has experienced a remarkable reduction, arriving at a seasonally adjusted rate of 3.37% in relation to all loans outstanding.
An impressive retreat of 19 basis points from the previous quarter, Q1 of 2023, stands a testament to this decline, and the year-over-year comparison further solidifies this trajectory, showcasing a dip of 27 basis points. Notably, the second quarter also witnessed a drop of three basis points in the percentage of loans that initiated foreclosure actions, settling at 0.13%.
Marina Walsh, CMB, MBA’s Vice President of Industry Analysis, eloquently states, “The seasonally-adjusted mortgage delinquency rate fell to its lowest level since MBA’s survey began in 1979, reaching 3.37% in the second quarter of 2023. Buoyed by a resilient job market, homeowners are continuing to make their mortgage payments.”
Taking a closer look at the landscape, the second quarter’s seasonally adjusted mortgage delinquency rate has exhibited a decline across all outstanding loans. In terms of stage, the 30-day delinquency rate has experienced a two-basis-point decrease, settling at 1.75%. The 60-day delinquency rate remains steadfast at 0.55%, while the 90-day delinquency category has witnessed a significant decline of 17 basis points, reaching 1.07%.
Diving into loan categories, conventional loans have witnessed a striking decrease of 15 basis points in the total delinquency rate, resting at a historic low of 2.29%. This achievement dates back to the inception of the survey in 2004. Meanwhile, FHA loans have experienced a 32 basis point reduction, settling at 8.95%, and VA loans have seen a decrease of 28 basis points, reaching 3.70%, both marking their lowest levels since Q4 of 2019.
On an annual basis, the journey of total mortgage delinquencies has witnessed a downward trend across all types of loans. Conventional loans showcase a decrease of 35 basis points, while FHA loans note a minor 10 basis point increase, and VA loans demonstrate a more substantial decline of 52 basis points from the previous year.
It’s important to note that the delinquency rate encompasses loans that are at least one payment overdue, excluding those currently undergoing foreclosure processes. The percentage of loans in the foreclosure process by the end of Q2 has dipped by four basis points from Q1 of 2023, and a notable six basis points compared to the same period last year, culminating at 0.53%.
Turning our attention to the non-seasonally adjusted seriously delinquent rate, which involves loans 90 days or more overdue or in the midst of foreclosure, the figures offer a compelling narrative. This rate stands at 1.61%, marking the lowest point since Q2 of 2000. A significant drop of 12 basis points from the previous quarter and an impressive 51 basis points from last year underscore the resilience of the market. This achievement resonates through the individual categories, with conventional loans decreasing by 10 basis points, FHA loans by 30 basis points, and VA loans by 11 basis points from the previous quarter. A more profound comparison to the previous year reveals a decline of 44 basis points for conventional loans, 93 basis points for FHA loans, and 68 basis points for VA loans.
While the realm of mortgage delinquencies presents a largely optimistic picture, it doesn’t escape the subtle undercurrents of consumer credit dynamics. Marina Walsh adds, “Despite low delinquency rates, there are early signs of possible consumer credit stress. Delinquencies are rising for other forms of credit, such as credit cards and car loans. In addition, FHA delinquencies rose 10 basis points compared to year-ago levels. On a non-seasonally adjusted basis, FHA delinquencies rose 13 basis points year-over-year, and 71 basis points from the first quarter of 2023. As the economy slows and the labor market cools, homeowners with FHA loans are likely to feel the distress first.”
In the realm of regional statistics, five states have reported the most significant quarterly increases in their overall non-seasonally adjusted delinquency rates:
- Indiana (37 basis points)
- Michigan (35 basis points)
- Ohio (35 basis points)
- Pennsylvania (32 basis points)
- Texas (31 basis points)
Furthermore, the U.S. Department of Labor (DOL) has contributed to the narrative, reporting a notable increase in seasonally adjusted initial unemployment claims for the week. The four-week moving average also exhibits a rise, indicating the ongoing dynamics of the labor market.
In conclusion, the realm of mortgage delinquencies, though showing remarkable improvement, is not immune to the ripples of broader economic factors. The market’s resilience is evident, yet the need for a watchful eye on consumer credit stress and shifting employment landscapes remains paramount.