FHA mortgage delinquencies pose the most risk to these metros: AEI

High delinquency rates on Federal Housing Administration loans are concentrated in 10 metropolitan statistical areas, and they turn out to be very similar to those that also experienced distress during the Great Financial Crisis, according to American Enterprise Institute research.

Those metro areas, ranked in part by the number of delinquent loans, are Atlanta (42,268), Houston (40,147), Chicago (28,792), Dallas (22,302), Washington, D.C. (20,285), Baltimore (17,851), Riverside, Calif. (17,622), San Antonio (14,491), Fort Worth (12,866) and Philadelphia (12,490).

“It is a double whammy that occurred even though the pandemic was a completely different event. Many of these areas — which tend to be low-income and minority — haven't recovered fully yet,” said Ed Pinto, AEI senior fellow and director of the institute’s housing center. Pinto co-authored the study with Tobias Peters, a research fellow and director at the institute.

The results of the study suggest FHA officials and servicers may want to think about ways they may be able to avoid compounding distress in these areas as a broader range of loan workouts resumes within certain parameters this summer, Pinto said.

The institute singled out for its rankings areas that either had total late-payment rates above 16% or 90-plus-day arrearage rates greater than 10%. MSAs also had to have an FHA share greater than 12.5% based on loan count. (These percentages include and largely reflect temporary pandemic-related payment suspensions known as forbearance. Loans in forbearance may re-perform as borrowers recover from hardships related to the coronavirus.)

The AEI additionally included metro areas that failed to meet the previous criteria but did have both an FHA share and total delinquency rate above 12%. It then ranked the metros based on the number of loans with late or suspended payments. The institute determined the share of FHA loans based on 2019 Home Mortgage Disclosure Act numbers and examined more recent delinquency data, current as of May 31, from the FHA’s Neighborhood Watch program. So its analysis of the Atlanta metro area, for example, shows that the region has a 17.4% delinquent loan share, a 12.8% 90-day-plus arrearage rate, and a 21% FHA share.

The average delinquency rate for FHA loans in May was 14.7%. The average 90-day-plus arrearage rate during the same month was 10.5%.

Loans insured by the Federal Housing Administration, an arm of the Department of Housing and Urban Development, tend to have relatively higher delinquency rates because the program serves lower-income and first-time buyers.The FHA uses the Neighborhood Watch program to monitor and compare mortgage companies’ loan performance relative to their peers and identify potential risks to its insurance fund.

The way that boundaries of metropolitan statistical areas are drawn up led to the omission of some regions where both FHA share and delinquencies are high, Pinto noted, citing Miami as one example of this.