Seriously delinquent loans hit highest level since 2022

Prepayment speeds increased last month on the back of falling interest rates, but seriously delinquent loan volumes also rose the highest amount since June 2022, and the most since June 2018 when excluding the immediate effect of COVID-19.

The national delinquency rate ticked up seven basis points to 3.72% last month, as the number of properties 30 or more days delinquent rose 2% and those seriously delinquent, 90 or more days late, increased 3%. The overall delinquency rate was also up 20 basis points year over year but still 12 basis points below the February 2020 rate, the report showed.

Louisiana, Mississippi, Alabama and Arkansas led all states in delinquency rate, each above 6%.

The hike in seriously delinquent loans was boosted by a decline in cure activity, rather than a surge of new defaults. Cure rates among seriously delinquent mortgages were down by more than 40% over the past four months, while the number of new loans that have become seriously delinquent has remained relatively stable, ICE said.

"Delinquencies edged higher, driven by seasonal increases in early-stage delinquencies and a notable rise in seriously past-due loans, though overall delinquency rates remain below prepandemic levels," said Andy Walden, head of mortgage and housing market research at ICE, in a press release Wednesday. "These dynamics bear watching in the coming months, as default activity continues to trend off recent record lows." 

The number of loans either seriously delinquent or in foreclosure hit 878,000 at the end of January, up 175,000, or 25%, over the past four months. Federal Housing Administration loans made up roughly 80% of the recent spike, the report found.

FHA borrowers drove up the national delinquency rate in the fourth quarter as well, with a rate of 11.52%, the highest mark since mid 2021, according to the Mortgage Bankers Association.

Separately, foreclosure activity increased from record lows. Foreclosure starts were down 16% to 35,000 month over month but up 7% on an annual basis. Foreclosure sales also declined 13% from January and grew 25% year over year. The share of loans in active foreclosure still rested six basis points below prepandemic levels, although it rose 4% in February and 25% from last year, according to ICE.

The single-month mortality rate, a measure of prepayment speed, climbed 10 basis points in February to 0.82%, marking an 80% jump from the same time last year, according to ICE Mortgage Technology's monthly First Look report. The gain was driven by a wave of refinances triggered by lower rates in January.

Mortgage rates continued to drop in February, as the 30-year fixed-rate mortgage dipped below 6%, but it spiked back up this month, largely due to the Iran war and inflation.