FHA Mortgage Delinquencies Hit Record High

Real Estate In-Depth | August 2020

WASHINGTON—The Mortgage Bankers Association reported on Aug. 17 that the share of late FHA loans rose to nearly 16% in the second quarter, up from about 9.7% in the previous quarter. The second quarter FHA delinquency rate was the highest level on record dating back to 1979.

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.22% of all loans outstanding at the end of the second quarter of 2020, according to the Mortgage Bankers Association’s National Delinquency Survey.

The delinquency rate increased 386 basis points from the first quarter of 2020 and was up 369 basis points from one year ago.

The delinquency rate for conventional loans was 6.7% in the second quarter. The MBA reported the VA delinquency rate increased by 340 basis points to 8.05% over the previous quarter, the highest rate since the third quarter of 2009.

The five states with the largest quarterly increases in their overall delinquency rate were: New Jersey (628 basis points), Nevada (600 basis points), New York (575 basis points), Florida (569 basis points), and Hawaii (525 basis points).

“The COVID-19 pandemic’s effects on some homeowners’ ability to make their mortgage payments could not be more apparent. The nearly four-percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA’s survey,” said Marina Walsh, MBA’s vice president of industry analysis. “The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans.”

Key findings of MBA’s Second Quarter of 2020 National Delinquency Survey:

• Compared to last quarter, the seasonally adjusted total mortgage delinquency rate increased for all loans outstanding. By stage, the 30-day delinquency rate decreased 33 basis points to 2.34%, the 60-day delinquency rate increased 138 basis points to 2.15%—the highest rate since the survey began in 1979—and the 90-day delinquency bucket increased 279 basis points to 3.72%—the highest rate since the third quarter of 2010.

• By loan type, the total delinquency rate for conventional loans increased 352 basis points to 6.68% over the previous quarter, the highest rate since the third quarter of 2012. The FHA delinquency rate increased 596 basis points to 15.65%—the highest rate since the survey began in 1979. The VA delinquency rate increased by 340 basis points to 8.05% over the previous quarter, the highest rate since third quarter of 2009.

• On a year-over-year basis, total mortgage delinquencies increased for all loans outstanding. The delinquency rate increased by 307 basis points for conventional loans, increased 643 basis points for FHA loans, and increased 381 basis points for VA loans.

• The delinquency rate includes loans that are at least one payment past due, but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 0.68%, down five basis points from the first quarter of 2020 and 22 basis points lower than one year ago.

• The percentage of loans on which foreclosure actions were started in the second quarter fell by 16 basis points from the first quarter to 0.03%.

• The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 4.26%, the highest rate since fourth quarter of 2014. It increased by 259 basis points from last quarter and increased by 231 basis points from last year. The seriously delinquent rate increased 219 basis points for conventional loans, increased 467 basis points for FHA loans, and increased 218 basis points for VA loans from the previous quarter. Compared to a year ago, the seriously delinquent rate increased by 184 basis points for conventional loans, increased 453 basis points for FHA loans, and increased 217 basis points for VA loans.

“The job market has improved over the past three months, with the unemployment rate falling for the third straight month from an April peak of 14.7% to 10.2% in July. This bright spot in the jobs picture is tempered by numerous uncertainties, including the ambiguous status of enhanced unemployment benefits and other stimulus measures, the recent surge in new COVID-19 cases, and the retrenchment from reopening in certain states,” Walsh said. “And there is no way to sugarcoat a 32.9% drop in GDP during the second quarter. Certain homeowners, particularly those with FHA loans, will continue to be impacted by this crisis, and delinquencies are likely to stay at elevated levels for the foreseeable future.”

Walsh added, “Fortunately, there are several mitigating factors that make this current spike in mortgage delinquencies different from the Great Recession. These factors include home-price gains, several years of home equity accumulation, and the loan deferral and modification options that present alternatives to foreclosure for distressed homeowners.”