First-mortgage default rate gets closer to September 2020's high

The first-mortgage default rate in July rose closer to a high it hasn't reached in almost two years, according to Standard & Poor's Dow Jones Indices and Experian.

At 0.42% in July, the rate was up from 0.38% the previous month and the highest seen since September 2020, when it was 0.46%. 

That suggests the mortgage market is half done with its transition from extraordinary pandemic relief back to more normal loan performance. In February 2020, just prior to COVID-19's arrival in the United States, the first-mortgage default rate was 0.84%. 

The rate at which first-mortgage borrowers go into default generally has been trending upward since October of last year, when it was 0.26%. Redefault rates for borrowers in forbearance also have been rising recently, but generally delinquencies remain historically low. First-mortgage default rates are still far below where they were when they peaked in the wake of the Great Recession's housing crash. The 10-year high for first-mortgage default rates, which was set in December 2012, was 1.68%.

The default rate for second-lien home loans has followed a more uneven path over the past 12 months than its counterpart in the first mortgage market. The former was down slightly on a consecutive-month basis in July, falling to 0.43% from 0.45%, but higher than it was a year ago, when it was 0.29%.

Overall, the 0.57% composite default rate for consumer credit indices was 4 basis points from the previous month and from 0.40% in July 2021. Most, but not all of the sub-indices registered an increase in the past month.

The auto-loan default rate was 0.66%, up from 0.62% the previous month and 0.31% a year earlier. However, the default rate for bank cards, at 2.44%, was down 11 basis points from June. In July of last year, the bank-card default rate was 2.51%.

The indices reflect data from 11,500 lenders and $11 trillion worth of outstanding loans in Experian's consumer credit database.