Rise in Delinquencies Overshadows Rising Demand in Originations
Written By: Joel Palmer, Op-Ed Writer
Mortgage processors and underwriters can look forward to high origination volumes in the immediate future. But lenders may also be dealing with a large number of defaults and foreclosures as well.
It’s an unusual mortgage market, to say the least.
Last week, Fannie Mae released its latest Home Purchase Sentiment Index, which showed that there is a little more optimism about buying and selling a home than there was the month before.
The survey revealed that 59 percent of respondents said now is a good time to buy a home, compared to 53 percent the month before. The percentage of respondents who indicated now is a good time to sell rose from 45 percent to 48 percent.
The market for refinancing also continues to remain robust.
Last week, Freddie Mac’s weekly mortgage rate survey showed the average 30-year fixed rate hit a record low of 2.86 percent. The 15-year fixed rate also continues to fall, averaging 2.37 percent last week.
Because of record low rates, Black Knight reported that 19.3 million current homeowners are “high-quality refinance candidates.” This is the highest number of refinance candidates since Black Knight started keeping track and accounts for about 43 percent of current 30-year fixed mortgages.
Black Knight defines high-quality refinance candidates as 30-year mortgage-holders with credit scores of 720 or higher, who hold at least 20% equity in their homes and are current on their mortgage payments and who stand to shave at least 0.75% off their first lien rate by refinancing.
Black Knight further stated that the average homeowner in this category could save nearly $300 a month by refinancing. More than 7 million could save at least $300 on their monthly mortgage payment by refinancing, while nearly 2.5 million could save $500 a month or more.
But low mortgage rates can’t help everybody during COVID-19. This is true of those who are in the first years of their mortgage and/or those who have lost some or all of their income during the pandemic.
CoreLogic, a global property information, analytics and data-enabled solutions provider, released its latest monthly loan performance report last week. As of June, 7.1 percent of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure), compared with 4 percent in June 2019.
CoreLogic’s research shows much of the same as other analysis. There is still huge demand for home buying due to low mortgage rates. However, existing loans are not performing well because of the pandemic.
CoreLogic said that delinquency rates could double between now and early 2022 without additional government support.
“Three months into the pandemic-induced recession, the 90-day delinquency rate has spiked to the highest rate in more than 21 years,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Between May and June, the 90-day delinquency rate quadrupled…following a similar leap in the 60-day rate between April and May.”
“Forbearance has been an important tool to help many homeowners through financial stress due to the pandemic,” said Frank Martell, president and CEO of CoreLogic. “While federal and state governments work toward additional economic support, we expect serious delinquencies will continue to rise — particularly among lower-income households, small business owners and employees within sectors like tourism that have been hard hit by the pandemic.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
