Mortgage distress grows as serious delinquencies tick up

A government regulator found serious mortgage delinquencies increasing in the third quarter, supporting other recent reports of potential rising economic distress among certain borrowers. 

The number of seriously delinquent loans past due by 60 days or more climbed up to 122,000 in the third quarter, up from 120,000 three months earlier, according to the mortgage metrics report from the Office of the Comptroller of the Currency. The latest number reflected a decrease from 132,000 a year ago but reversed course after five quarters of improving performance among U.S. homeowners.

Foreclosures newly initiated also increased 6.3% to 6,693 from 6,295 in the second quarter. The number was down from 8.956 in the third quarter of 2023, but similarly, marked a reversal from a more than year-long downward trend. 

The recent quarter-to-quarter data places additional focus on indicators raised in other research of possible growing economic difficulties among homeowners. Last week, Corelogic reported a "concerning" rise in late payments, which increased for a fourth straight month, and also found a significant spike in the number of markets with serious delinquencies from earlier this year.  

While serious delinquencies are becoming a point of concern, "overall mortgage performance this quarter improved from the third quarter of 2023," the OCC said. 

The share of outstanding mortgages performing and current stood at 97.4%, expanding by one-tenth of a percentage point from 97.3% on both a quarterly and annual basis. 

The number of borrowers who were 30 to 59 days delinquent improved to approximately 154,000 in the third quarter compared to 170,000 three months prior. Total foreclosures in process also pulled back to 18,000 from 19,000. OCC's data would not have included a full effect of Hurricane Helene, which made landfall at the end of September. 

For homeowners formerly in the serious delinquent stage, servicers completed modifications for 7,450 loans between July and September, a 0.5% pullback from 7,488 in the second quarter.  Of the new modifications, 92.4%, or 6,885, combined different types of assistance affecting payment amounts or loan terms, such as extensions, capitalization of delinquent interest and fees or mortgage rate relief. 

The performance of borrowers receiving modifications in 2024's first quarter, though, point to possible signs of economic challenges homeowners have for recovery. Of that quarter's 7.926 modified loans, a 22.2% share, or 1,756, had re-defaulted by the end of September, with all in the seriously delinquent stage by that point. The share grew from 20.9% in the second quarter.  

The OCC's quarterly mortgage report looks at first liens serviced by seven national banks and accounts for 21.1% of outstanding home loan debt. Third-quarter numbers included data from 11.2 million mortgages, equaling close to $2.8 trillion in unpaid principal balance.