The share of homeowners behind on their mortgages is starting to abate after reaching a nine-year high in the second quarter when delinquencies increased at a historic pace.
Delinquent single-family mortgages backed by Fannie Mae, Freddie Mac, and Ginnie Mae fell to 6.12% in July, down from 6.83% in June, according to a recent analysis by Inside Mortgage Finance, a financial news and statistics company.
The decline comes after the Mortgage Bankers Association said this week that delinquencies in the second quarter, which ended in June, hit the highest level since the second quarter of 2011. The quarter-over-quarter increase was also the largest on records dating back to 1979.
Many of these delinquent mortgages are also loans in forbearance as a result of the CARES Act, a key distinction. Loan servicers can suspend payments up to 12 months if borrowers demonstrate a COVID-19 related financial hardship.
“I think anyone who hears this delinquent number, but doesn’t know it includes those in forbearance, might draw the wrong conclusions,” said Jeff Tucker, an economist at Zillow, a real estate listing site. “There are still a number of people [in forbearance] who are still able to pay their mortgages.”
‘Mortgage delinquencies different from the Great Recession’
Mortgages backed by Fannie Mae fell to 4.27% in July from 4.81% in June, while Freddie Mac’s delinquencies declined to 3.92% from 4.42%.
The bulk of delinquencies came from mortgages backed by Ginnie Mae, which provides insurance for the Federal Housing Administration, Veterans Affairs, and the Rural Housing Service. The rate of delinquent loans was 10.81% in July, still a high level, but down from 11.82% in June.
FHA home loans had the highest delinquency rates, which stood at 12.79% at the end of July. That was still a drop from their June delinquency rate of 14.07%.
“Fortunately, there are several mitigating factors that make this current spike in mortgage delinquencies different from the Great Recession,” said Marina Walsh, MBA’s vice president of industry analysis. “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.”
The job market’s recovery also may factor into the direction of delinquency numbers.
The latest jobless claim numbers stood at 963,000 for the week of Aug. 8, which is down substantially from the early weeks of the pandemic when they surpassed 6 million.
“We saw 21 million in job losses in April, but then in June, we saw we had gained 40% of that back,” said Danielle Hale, chief economist at realtor.com, a real estate listing site. “It will be important to see delinquencies as the economy [continues] to bounce back.”