Resurgence in delinquency rates signals concerns

In September, the mortgage delinquency rate took its biggest leap in over two years, according to ICE Mortgage Technology. 

The nationwide delinquency rate surged 13 basis points on an annual basis — the largest upswing since mid-2021 — to 3.29% of total servicing volume, the technology and data provider said in its first-look report this week. The share, which comes out to approximately 1.75 million mortgages, was also up month over month by 12 basis points, as loan performance showed continued signs of deterioration across all stages. 

The number of mortgages late by 30 days or more rose for the fourth straight month, up 48,800 or 5.1% from August. Likewise, delinquencies of 60 days or greater increased for the sixth month in a row, climbing up by 8,700 or 3%. 

Also of note, the number of noncurrent borrowers late by at least 90 days inched up for the first time in 2023. It was only the second instance in three years, rising by 7,000. 

ICE's numbers largely mirror trends seen across the consumer-loan landscape, with overall delinquencies up among all products, as more borrowers struggle to stay current amid inflationary and rate pressure, VantageScore recently found. 

Numbers released last week by the Mortgage Bankers Association reflected the same trend. While researchers at the trade group saw forbearances slowing, they also determined overall performance of mortgage servicing portfolios declining, with more borrowers falling behind in September, and warned of potential economic headwinds ahead.  

"Several factors — including unemployment increases, rising property taxes and insurance, the resumption of student debt payments and possible natural disasters — may affect loan performance in future months," said Marina Walsh, MBA's vice president of industry analysis, in a press release.

Late-summer disasters, including Hurricane Idalia and the Maui wildfire, may have contributed to the higher level of early-stage distress in September as well. Hawaii showed a year-over-year 13.1% rise in delinquencies, the third worst deterioration in the U.S.   

Still, even as the number of struggling mortgage borrowers appears to be growing, the current level is 71 basis points below where it sat in September 2019 before the COVID-19 pandemic hit, according to ICE. 

As the distressed-mortgage rate is increasing, though, foreclosure data seems headed in a counterintuitive opposite direction, indicating borrowers may be finding resolutions before lenders begin the process of taking possession of their homes. 

Loans in an active foreclosure status decreased to 214,000 in September, the lowest since March 2022 and also close to 25% below 2019 pre-pandemic levels

Foreclosure starts dropped by over 20% from August to 25,000 but still represented an almost 5% annual rise, ICE said. The number of properties in foreclosure pre-sale status also inched down 0.4% on a monthly basis.

Meanwhile, foreclosure sales, which equaled approximately 6,400 in September, declined by 7.5% from August. While servicers continue to introduce loss-mitigation solutions, high levels of accrued home equity may also be offering struggling homeowners protection that keep them from foreclosure. 

Accelerating interest rates have managed to both lower demand, but keep home equity up at the same time, as homeowners opt to remain in place rather than take on the higher costs associated with a new mortgage. The lock-in effect has kept values at a level higher than most industry economists predicted at the end of 2022.