Rising Mortgage Delinquencies: FHA Loans Under Stress
Summary:
The Mortgage Bankers Association’s National Delinquency Survey reveals a 6-basis-point increase in mortgage delinquencies in the third quarter, driven by declining performance of Federal Housing Administration (FHA)-insured loans. FHA borrowers face challenges from a softer labor market, rising insurance premiums, and personal debt obligations. Marina Walsh, MBA’s VP of Industry Analysis, highlights growing concerns over FHA seriously delinquent rates, which have surged nearly 50 basis points year-over-year. This trend signals potential risks for the broader housing market as home price declines and economic uncertainties persist.
What This Means for You:
- Monitor Loan Performance: If you hold an FHA loan, stay vigilant about payment schedules and seek early assistance if financial strain arises.
- Explore Refinancing Options: Rising delinquencies may signal tighter lending conditions. Consider refinancing now to secure better rates.
- Plan for Escalating Costs: Budget for potential increases in homeowners insurance premiums and other fees tied to FHA loans.
- Future Outlook: Delinquencies are expected to climb further in 2024, particularly as pandemic-related relief programs end and economic pressures mount.
Original Post:
Mortgage delinquencies increased by 6 basis points from the second quarter, as the performance of Federal Housing Administration-insurance loans declined, the Mortgage Bankers Association National Delinquency Survey found.
Recently, ICE Mortgage Technology executive Andy Walden said FHA loan performance trends were a yellow flag for the mortgage industry.
Delinquent mortgages made up 3.99% of all outstanding loans when seasonally adjusted in the third quarter, up from 3.93% in the second quarter and 3.92% one year prior.
This is the second highest delinquency rate since an all-time low was recorded in the second quarter of 2023. The 3.37% posted for that period was 62 basis points below the most recent data.
While the foreclosure start rate was still rather low at 0.20%, it was 3 basis points higher than the previous quarter. The share of loans in the foreclosure process was 50 basis points, up 2 basis points from the second quarter and 5 basis points over the third quarter of 2024.
“Since this time last year, the FHA seriously delinquent rate — which includes 90-plus day delinquencies and loans in foreclosure — increased by almost 50 basis points,” Marina Walsh, the MBA’s vice president of industry analysis, said in a press release. “In contrast, the conventional and Veterans Affairs seriously delinquent rates remained relatively flat.”
The period’s results were not affected by the government shutdown or the end of pandemic related FHA loss mitigation programs, although those are likely to affect delinquency activity going forward, Walsh said.
FHA borrowers are more affected by a softer labor market, other personal debt obligations, along with increases in taxes, homeowners insurance premiums and other fees, she said.
“Additionally, home price declines in some parts of the country may lessen the ability to sell or refinance,” Walsh warned. It is the growth in values which provides a level of protection for distressed borrowers in recent years.
While the seasonally adjusted serious delinquent borrower rate (90 or more days) of 111 basis points was unchanged from the second quarter, the shorter term buckets were higher.
For borrowers who are between 30 and 59 days late on their scheduled payment, the rate increased 2 basis points to 2.12%, while between 60 and 89 days rose 4 basis points to 76 basis points.
FHA mortgage rates were 21 basis points higher to 10.78% versus the second quarter, while year-over-year they are 32 basis points more.
Conventional loans overall late payments rose 2 basis points to 2.62% from three months prior but reported a 1 basis point drop versus the third quarter of 2024.
While the overall VA rate rose 18 basis points to 4.5% between the second and third quarters, it dropped 8 basis points from one year ago.
The seriously delinquent rate decreased 2 basis points for conventional loans, increased 30 basis points for FHA loans, and decreased by 1 basis point for VA loans quarter-to-quarter.
Versus the third quarter 2024, this fell by 4 basis points for conventional loans, but rose 47 basis points for FHA loans and 4 basis points for VA loans.
In recent reports from bond rating agencies KBRA and Fitch, both are expecting delinquency rates to increase next year.
Extra Information:
FHA Ends Pandemic Relief Programs: Learn how the conclusion of these programs may impact future delinquency rates.
Rising Homeowners Insurance Premiums: Explore the factors driving insurance cost increases and their effect on borrowers.
Fitch’s Housing Market Forecast: Understand the broader economic trends influencing mortgage delinquencies.
People Also Ask About:
- What is causing FHA delinquency rates to rise? A combination of economic pressures, including higher insurance premiums and a softer labor market, is driving the increase.
- How do FHA delinquencies compare to conventional loans? FHA delinquencies are rising faster, with a 47-basis-point year-over-year increase compared to conventional loans.
- What happens if I miss an FHA mortgage payment? Late payments can lead to penalties, increased fees, and potential foreclosure if delinquency persists.
- Can I refinance an FHA loan if I’m delinquent? Refinancing options may be limited, but contacting your lender early can help explore solutions.
- Will delinquencies impact home prices? Rising delinquencies could contribute to downward pressure on home prices in certain markets.
Expert Opinion:
Marina Walsh, VP of Industry Analysis at MBA, emphasizes that FHA loans are particularly vulnerable to economic shifts, with serious delinquencies surging nearly 50 basis points year-over-year. This trend underscores the need for proactive borrower support and policy interventions to mitigate risks in the housing market.
Key Terms:
- FHA delinquency rates
- mortgage performance trends
- rising homeowners insurance premiums
- housing market economic pressures
- pandemic mortgage relief programs
- foreclosure start rate
- home price declines
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