Short-term delinquencies steady after first quarter: FHFA

The near-term performance of mortgages backed by government-sponsored enterprises wavered little although those outstanding longer experienced some slight stress, bearing up while the Federal Housing Administration insured market experienced more.

The share of homeowners late by 60 or more days decreased to 0.81% at the end of the first quarter, according to a Federal Housing Finance Agency report released last week. The FHFA completed 58,317 prevention actions, up from the previous quarter's 55,028. 

The serious delinquency rate increased to 0.59% at the end of Q1. This is compared with 6.10% for FHA loans and 2.61% for VA loans. Fannie Mae and Freddie Mac buy loans that meet stricter underwriting standards whereas FHA loans are specifically designed to support those with thinner credit and smaller down payments. 

"If something happens and you don't have a nest egg, you're going to go into foreclosure, so FHA are the biggest foreclosed loans right now," said Adam Klayman, president of Florida Mortgage Brokerage.

Older FHA loans also have had particularly high delinquency rates attributed to temporary impacts from a rule change, with hardships across the market somewhat offset by seasonal improvements from tax refunds starting in March. 

Florida, New York, California, Texas and Illinois were the top deeply delinquent states, with New York having the most that were 72 or more months overdue. 

Before a lender can foreclose a home, there is usually an attempt to resolve the situation. The FHFA tracks them closely because helping people stay housed is generally better for the mortgage company.

The share of cash-out refinance transactions declined to 35.2%, down from the peak level of 82.4% recorded in September 2022. Back then, interest rates shot up dramatically and people with low rates had no incentive for rate-and-term financing because they were locked-in on low prices. That is why the small group that was still refinancing in 2022 were almost entirely people with a specific cash need who would accept the rate trade off. 

Now, as interest rates are steady, people who have rates higher than 6% are more likely to refinance and therefore the share of cash-out loans is lower.