FHA delinquency rate spiked in the fourth quarter

The average delinquency rate for Federal Housing Administration-insured mortgages jumped 131 basis points from the previous quarter to 10.81%, marking a high not seen since the third quarter of 2021.

FHA loans typically perform more poorly than other mortgages because their borrowers have lower incomes and are more susceptible to financial stress, but the jump between the third and fourth quarters was much larger than even the 55 basis-point jump in 3Q. The increase in the FHA sector also was more than five times the 26 basis-point uptick to 3.88% for home loans overall.

Increases in FHA delinquencies can foreshadow stress on the broader mortgage market and Marina Walsh, the Mortgage Bankers Association's vice president of industry analysis, said in a press release that arrears in all categories have now been rising for two quarters in a row.

"While the overall delinquency rate is still very low compared to the historical average, the pace of new loans entering delinquency picked up and some loans moved into later stages of delinquency," she said, noting that strong employment has helped limit distress for most types of mortgages.

However, for some it was outweighed by college debt obligations that restarted after a pandemic-related respite, and increased borrowing on credit cards and other forms of consumer debt as bank-account balances have declined, according to Walsh.

Conventional mortgages, which tend to be among the strongest performers, bore up best during the quarter, with their delinquency rate rising only 11 basis points to 2.61%. The rate of arrears on home loans that the Department of Veterans Affairs guaranteed climbed 31 basis points to 4.07%.

Thirty-day delinquency rates rose by 7 basis points during the quarter to 2.10%. The percentage of borrowers late by 60 days jumped by 11 basis points and remained low at 0.73%. Seriously delinquent borrowers late by 90 days had an 1.05% arrears rate that was up 7 basis points.

Geographically, the five states with the biggest increases in delinquency rates during the quarter were Louisiana, 77 basis points; West Virginia, 53; Illinois and Texas, 44; and New Mexico, 42.

The MBA does not include foreclosures in the delinquency rate, which between 1979 and the end of 2023 averaged 5.25%. All delinquency rates are lower than they were during the fourth quarter a year ago, when the average was 8 basis points lower than it is now.

The 47 basis-point foreclosure rate in the fourth quarter was down 2 basis points and the lowest it's been since the fourth quarter of 2021.

The VA called for a temporary foreclosure suspension in the fourth quarter to give it time to put in place a successor to one of its pandemic relief programs in place. This may have played a role in the slight reduction seen in this category.