Serious delinquencies fall, still top pre-pandemic level by 1 million

Despite near-term improvement, borrowers with mortgage payments over 90 days late outnumbered pre-pandemic totals by more than 1 million last month.

July’s 1.45 million seriously delinquent borrowers not yet in foreclosure came down from 1.55 million in June and 2.25 million the year before, according to Black Knight’s latest First Look report. The equivalent number pre-pandemic was well under 500,000.

The overall national delinquency rate dropped to 4.1% and 2.2 million from 4.4% and 2.3 million one month earlier and from July 2020’s 6.9% and 3.7 million. That rate was 3.3% in February 2020, the final full month before any coronavirus-related shutdowns in the U.S. occurred.

As delinquency numbers improve alongside economic recovery, servicers are turning to focus more on those who still have forborne payments and are increasingly likely to face long-term distress. (Black Knight’s delinquency numbers include borrowers with pandemic-related payment suspensions.)

“Most of the people in forbearance right now are rolling to delinquent and then to more seriously delinquent as things go on,” Bob Hora, SVP of default operations at Cenlar, said in an interview. “The question then becomes, can they make their current payment or are they going to need a modification of some sort? We think a percentage of these homeowners got out of the habit of making their payment over the last 18 months and they're not going to be able to perform even at a reduced rate.”

About 4,200 borrowers started the foreclosure process in July, the final month of the government moratorium — although that could get extended in some areas with the rise of the Delta variant. The foreclosure start rate decreased 4.6% monthly and 57.6% annually. The percentage of borrowers in active foreclosure dipped to 0.26% from 0.27% in June.

Broken down at the state level, Mississippi had the highest rate of non-current borrowers at almost 7.7%, followed by 6.9% in Louisiana, 6.1% in Hawaii, 5.9% in Oklahoma and 5.8% in West Virginia. Similarly, the five highest serious-delinquency rates came in Mississippi at 4.6%, Louisiana at 4.2%, Hawaii at 3.83%, Maryland at 3.81% and Alaska at 3.8%.