Mortgage delinquencies diving down in 2021

The latter half of 2021 has seen delinquency rates on the decline. The return to normalcy following months of pandemic-induced job losses has gradually helped more homeowners find the ability to make payments on time.

In the third quarter (Q3) of 2021, the delinquency rate for mortgaged loans declined to 4.9%, according to the Mortgage Bankers Association (MBA). This is down from 7.7% a year earlier and continues a consistent decline after delinquencies peaked in Q2 2020 at 8.2%.

Broken down by mortgage type, the share of delinquent mortgages was:

3.6% for conventional loans, down from 5.9% a year earlier;
11.3% for U.S. Department of Federal Housing Administration (FHA)-insured mortgages, down from 15.6% a year earlier; and
5.8% for U.S. Department of Veterans Affairs (VA)-guaranteed mortgages, down from 8.2% a year earlier.

The majority of these delinquencies continue to be serious, with 2.9% of mortgages 90+ days delinquent. Many of these mortgages are safe from foreclosure under a forbearance program — for now.

After foreclosure protections ended in July 2021, a further 0.5% of mortgage loans are now in the foreclosure process. As the foreclosure moratorium kept delinquent mortgages from entering or moving through the foreclosure process for 18 months, Q3 2021’s foreclosure level is near an historic low.

While the number of mortgages in forbearance decreasing, there are still an abundance of loans in a forbearance program. In October 2021, the share of mortgaged homeowners in a forbearance program decreased to 2.1%. This translates to 1 million homeowners still in forbearance, including:

74% in an extension program;
16% in their initial forbearance program; and
10% in forbearance re-entries, according to the MBA.

Home values have increased rapidly over the past year, with California home prices averaging 19%-22% higher than a year earlier as of September 2021. Some sellers are choosing to strike while the iron is hot – hoping to sell their homes while they have high equity, rather than struggle to make payments. As forbearance programs continue to end, today’s low supply will receive a new surge of inventory, which will cool prices.

The cure for delinquencies is linked to:

a fully recovered jobs market;
homeowners unable to resume payments simply choosing a forced sale, releasing their homes onto the market; and
servicers working with homeowners who have lost some income but are seeking to resume mortgage payments by granting permanent mortgage loan modifications.

Expect mortgage delinquencies to continue to gradually taper off in the months ahead with the slow return of jobs. As more homeowners transfer out of forbearance programs, they will resume mortgage payments when able and willing — or sell. Therefore, a boost in home resale inventory is anticipated in 2022 — good for homebuyers, and crucial for real estate professionals who have felt the strain of historically low inventory in 2020-2021.

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