Mortgage defaults within 6 months from close are on the rise

Early payment mortgage defaults went to the highest level in nearly a decade for September, particularly among loans included in Ginnie Mae securities, a Black Knight report said.

"About 1% of loans originated in the first quarter were delinquent six months after origination," Ben Graboske, president of data and analytics for Black Knight, said in a press release. "While that's less than one-third of the 2000-2005 average of 2.95%, it represents a more than 60% increase over the last two years and is the highest it's been since late 2010. Early-stage government-sponsored enterprise delinquencies currently stand at 0.6%, up two-tenths of a percentage point over the past 24 months, but still 40% below the market average and 60% below their own 2000-2005 average of 1.3%."

Mortgages made to first-time homebuyers by conforming and government lenders increased nearly 50% between 2014 and 2018. This segment made up 70% of the Ginnie Mae purchase market, versus just over 40% of the conforming market, Graboske said. The increase in early-stage delinquencies is driven by purchase loans. Rising debt-to-income ratios as homes become less affordable and declining credit scores among first-time buyers are the likely culprits.

"That concentration is contributing to a more significant increase in early-stage delinquencies among Ginnie Mae loans, which saw 3.3% of loans delinquent six months after origination. That's up 1.2 percentage points from two years ago, and though still roughly half the 2000-2005 precrisis average, it represents the sharpest increase we've seen in the market in recent years," Graboske said.

"However, performance among repeat purchasers with Ginnie Mae-securitized loans has remained relatively steady overall, with the rise more pronounced among first-time homebuyers."

The delinquency rate rose 8 basis points in September from August, to 3.53%, Black Knight said. However, that dropped over 11% from 3.97% in September 2018.

The number of properties at least 30 days late on payments but not yet in foreclosure rose by 41,000 from August to 1.854 million. But the presale foreclosure inventory fell 1,000 from the previous month (and 16,000 from September 2018) to 252,000.

Prepayment speeds rose over 3% in September to a rate of 1.55%, which occurred "despite facing headwinds from the typical seasonal decline in home-sale-related prepayments," Black Knight said.

But rising interest rates might put the kibosh on refinance activity going forward.

The average rate for the 30-year fixed loan rose to 3.78%, last week, a gain of 3 basis points, according to Freddie Mac data.

That cut the population of likely refinance candidates down to 6.8 million from approximately 8 million the prior week and the all-time high of 11.7 million. However, the size of the potential refi market is still 60% larger than it was one year ago, Black Knight pointed out.

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