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Early-Stage Delinquencies Rise After Recent Storms

Data from CoreLogic shows that, nationally, 5.1 percent of mortgages were in some stage of delinquency (30 days or more past due including those in foreclosure) in October 2017. This represents a 0.1 percentage point year-over-year decline in the overall delinquency rate compared with October 2016 when it was 5.2 percent.

As of October 2017, the foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.6 percent, down 0.2 percentage points from 0.8 percent in October 2016. The foreclosure inventory rate has held steady at 0.6 percent since August 2017, the lowest level since June 2007 when it was also at 0.6 percent.

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Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To monitor mortgage performance comprehensively, CoreLogic examines all stages of delinquency as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next.

The rate for early-stage delinquencies, defined as 30-59 days past due, was 2.3 percent in October 2017, down 0.1 percentage points from 2.4 percent in September 2017 and up 0.1 percentage points from 2.2 percent in October 2016. The share of mortgages that were 60-89 days past due in October 2017 was 0.9 percent, up 0.2 percentage points from 0.7 percent in both September 2017 and October 2016. The serious delinquency rate, reflecting loans 90 days or more past due, in October 2017 was 1.9 percent, unchanged from September 2017 and down 0.4 percentage points from 2.3 percent in October 2016. The 1.9 percent serious delinquency rate in June, July, August, September and October of this year marks the lowest level for any month since it was also 1.9 percent in October 2007.

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“After rising in September, early-stage delinquencies declined by 0.1 percentage points month over month in October. The temporary rise in September’s early-stage delinquencies reflected the impact of the hurricanes in Texas, Florida and Puerto Rico, but now the impact from the hurricanes is fading from a national perspective,” said Dr. Frank Nothaft, chief economist for CoreLogic. “While the national impact is waning, the local impact remains. Some Florida markets continue to see increases in early-stage delinquency transition rates in October, reaching 5 percent, on average, in Miami, Orlando, Tampa, Naples and Cape Coral. Texas markets such as Houston, Beaumont, Victoria and Corpus Christie peaked at over 7 percent in September, but are on the mend and improving in October.”

Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 1.1 percent in October 2017, down from 1.3 percent in September 2017 and up from 1 percent in October 2016. By comparison, in January 2007, just before the start of the financial crisis, the current-to-30-day transition rate was 1.2 percent and it peaked in November 2008 at 2 percent.

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“While the national impact of the recent hurricanes will soon fade, the human impact will remain for years. For example, the displacement and rebuilding in New Orleans after Hurricane Katrina extended for several years and altered the character of the city, an impact that still remains today,” said Frank Martell, president and CEO of CoreLogic. “The reconstruction of the housing stock and infrastructure impacted by the storms should provide a small stimulus to local economies. This rebuilding will occur against a backdrop of wage growth, consumer confidence and spending in the national economy which should continue to provide a solid foundation for real estate demand in the storm-impacted areas and beyond.”

Progress In Lending
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Seriously Delinquent Rate Drops To Seven-Year Low

According to the May 2015 National Foreclosure Report by CoreLogic, the foreclosure inventory declined by 27.4 percent and completed foreclosures declined by 19.2 percent from May 2014. The number of foreclosures nationwide decreased year over year from 51,000 in May 2014 to 41,000 in May 2015, representing a decrease of 64.9 percent from the peak of completed foreclosures in September 2010, according to CoreLogic data.

Completed foreclosures are an indication of the total number of homes actually lost to foreclosure. Since the financial crisis began in September 2008, there have been approximately 5.7 million completed foreclosures across the country, and since homeownership rates peaked in the second quarter of 2004, there have been approximately 7.8 million homes lost to foreclosure.

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As of May 2015, the national foreclosure inventory included approximately 491,000, or 1.3 percent, of all homes with a mortgage compared with 676,000 homes, or 1.7 percent, in May 2014. This is the lowest foreclosure rate since December 2007.

CoreLogic also reports that the number of mortgages in serious delinquency (defined as 90 days or more past due, including those loans in foreclosure or REO) declined by 22.7 percent from May 2014 to May 2015, with 1.3 million mortgages, or 3.5 percent, falling into this category. This is the lowest serious delinquency rate since January 2008. On a month-over-month basis, the number of seriously delinquent mortgages declined by 3.4 percent.

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“With three million jobs created during the past year, the improving labor market has helped more borrowers stay current on their mortgage loan,” said Frank Nothaft, chief economist for CoreLogic. “Because fewer loans are becoming seriously delinquent, the foreclosure inventory has come down to its lowest level in more than seven years, with only 1.3 percent of loans in foreclosure proceedings.”

“While the nation’s seriously delinquent rate—3.5 percent—is at its lowest level since January 2008, it remains very high in several big markets,” said Anand Nallathambi, president and CEO of CoreLogic. “The greater New York City region and central Florida continue to have some of the highest serious delinquency rates, almost doubling the national level. Default rates remain elevated in the Chicago and Baltimore metro areas as well.”

Progress In Lending
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Legitimizing Home Equity Lending Delinquency Concerns

Between 2004 and 2008, originations peaked thanks to low home prices and relaxed credit standards. Most of us who recall home equity lending’s fever pitch are not shocked when we hear that HELOCs opened between 2004 and 2008 account for 60 percent of today’s outstanding loans. Now, 10 years removed from origination, these loans are beginning to reset into amortization and borrowers will transition from interest-only payments to paying down the principal.

An estimated $221 billion in HELOC loans will hit the market from 2014-2018, but many borrowers are unprepared or incapable to make the higher payments, which can increase hundreds of dollars per month and include interest, principle and a balloon payment in some cases. This once-emerging threat that loomed on the horizon is now very real – delinquency rates on these lines of credit are doubling at their 10-year mark.

Thankfully, I am not the only person that is concerned with the coming waves of HELOC resets. The FDIC, OCC, Federal Reserve Board and NCUA released a financial institution letter on July 1, 2014, which is intended to promulgate risk management principles and expectations that FDIC-insured banks should adhere to as they prepare to field the incoming resets. First, I commend these agencies for proactively addressing this issue, emphasizing the importance of evaluating borrowers and measure their financial capacity to make full repayments. The waves of resetting HELOCs are already here and will have significant impacts on home equity portfolios and first-lien mortgages. The Consumer Financial Protection Bureau requires servicers to notify borrowers of a reset 120 days in advance and many lenders are open to loan modifications and may be willing to discuss this possibility in advance to prevent the borrower from collapsing into financial crisis. However, we need to know more about borrowers so that we can proactively assist those who will have a higher propensity to become delinquent.

Evaluating borrower credit risk is incredibly critical in this process, but can mitigate the end-of-draw exposure within HELOC portfolios when properly executed. Today, there is a sea of comprehensive data, such as property and credit information, that lenders can leverage to pre-approve borrowers who do have the ability to pay. Still, there are many profile specifics, such as employment and income, which are difficult to assess without some degree of borrower involvement. This is where exceptional customer service must be provided. Why make a borrower provide all of the documentation to prove ability to repay, such as paystubs, W-2’s, tax returns when all of this documentation can be secured by the lender with the borrower’s consent? Customer satisfaction is the lender’s life support and is critical to remaining competitive in this market. Borrowers want an easy process and if you don’t provide that, they will go to someone who does.

I encourage all lenders to work to increase communication and transparency, while making sure that they are leveraging the most updated FICO scores, credit attributes, debt-to-income information and other vital data. These attributes empower lenders to better understand their risk exposure and develop modification strategies if necessary.

About The Author

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Rosie Biundo is Senior Director of Product Marketing for Equifax, a global leader in consumer, commercial and workforce information solutions that provide businesses of all sizes and consumers with insight and information. For more information, please visit www.equifax.com.