Coronavirus outbreak triggers first-quarter loan delinquency increase

In keeping with the trend of negative impacts on the housing and mortgage industries due to the coronavirus outbreak, first-quarter 2020 saw the share of delinquent loans rise as the pandemic began to spread.

That’s according to the latest results of the Mortgage Bankers Association’s National Delinquency Survey, which found that the mortgage delinquency rate for one- to four-unit residential properties grew to a seasonally adjusted rate of 4.36% at the end of this past March. That’s up 59 basis points from fourth-quarter 2019, although down six basis points compared to the first quarter of last year.

The 30-day delinquency rate grew to 2.67% — a jump of 50 basis points that matched third-quarter 2017 as the highest figure in the survey’s history. The 60-day delinquency rate grew seven basis points to 0.77%, while the share of loans 90 days or more past due increased three basis points to 0.93%.

“The mortgage delinquency rate in the fourth quarter was at its lowest rate since MBA’s survey began in 1979,” said Marina Walsh, MBA’s vice president of industry analysis. “Fast forward to the end of March, and it is clear the COVID-19 pandemic is impacting the market.”

The quarterly increase reported by the MBA occurred despite a recent CoreLogic report that delinquencies reached a generational low in February 2020, suggesting a surge of delinquent loans spurred by COVID-19 at the end of the quarter. Per CoreLogic, the nation’s overall delinquency rate this past February was 3.6%, down 0.4 percentage points from the same month in 2019 and the lowest rate for any month since at least 1999.

Walsh said that the mortgage market should expect the delinquency rate to continue escalating as the second quarter wears on. 

“Mortgage delinquencies track closely with the U.S. job market,” she said. “With unemployment rising from historical lows in early 2020 to a record 14.7 percent in April, it is inevitable that mortgage delinquencies would increase as well – 33.5 million U.S. workers applied for unemployment benefits in the past seven weeks, and with signs of economic distress continuing into the second quarter, mortgage delinquencies will likely further increase.”

“After a long period of decline, we are likely to see steady waves of delinquencies throughout the rest of 2020 and into 2021,” said Frank Martell, president and CEO of CoreLogic. “The pandemic and its impact on national employment is unfolding on a scale and at a speed never before experienced and without historical precedent.

“The next six months will provide important clues on whether public- and private-sector countermeasures — current and future — will soften the blow and help us avoid the protracted, widespread foreclosures and delinquencies experienced in the Great Recession.”

CoreLogic chief economist Frank Nothaft foresees the delinquency figures potentially getting much worse before they get better.

“By the second half of 2021, we estimate a four-fold increase in the serious-delinquency rate, barring additional policy efforts to assist borrowers in financial distress,” he said.

Meanwhile, the foreclosure-inventory rate (the share of loans in some stage of the foreclosure process) was at 0.73% last quarter, its lowest level since 1984.

According to Walsh, foreclosure starts could flatten out in upcoming quarterly surveys despite rising delinquencies, thanks to government-enacted moratoria on foreclosures and forbearance provisions enacted via the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

“Once foreclosure moratoria are lifted and forbearance periods end, borrower repayment and modification options, combined with year-over-year equity accumulation and home-price gains, may present alternatives to foreclosure for the millions of distressed homeowners affected by this unfortunate pandemic and economic crisis,” Walsh said.


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