The nearly 10% spike in the national delinquency rate reported in Lender Processing Services’ First Look at mortgage performance was based on approximately 700,000 newly 30-day delinquent loans in June, the company reported Monday morning.
The spike, while large, should be seen in the proper context, according to LPS Applied Analytics Senior Vice President Herb Blecher. “June’s increase in delinquencies is representative of a documented seasonal phenomenon,” he said.
Similar changes have occurred in June in all but four of the past 18 years. The increase this month was widely spread — from a roughly 14% month-over-month increase in 30-day delinquencies in Nevada to a nearly 32% upswing in Colorado.
“Additionally, we examined the data to see the effect of recent increases in interest rates on delinquency rates and found no significant impact thus far. Adjustable-rate mortgages, which one would expect to be impacted most by such interest rate changes, actually saw delinquency rates rise at a lower relative rate than those of fixed-rate mortgages,” said Blecher.
“Of course, focusing solely on month-to-month shifts in mortgage performance can be like tracking the stock market on a daily basis. You may see periodic spikes and dips, but without a longer-term perspective, you lack a clear picture of how the market is actually performing,” he added.
Despite June’s significant spike of 9.9% — and a reversal of five consecutive months of declines — on a quarterly basis, the rise was much more moderate than the historical average. Since 1995, delinquency rates have increased from the first quarter to the second quarter in all but two years, with an average increase of 7%. The first to second quarter increase in 2013 was just 1.34%.
In an effort to look further into the impact of mortgage interest rate changes, LPS reviewed the pool of potential refinance mortgages and discovered that, despite improved equity situations nationwide, fewer loans have refinanceable characteristics at the new rates, as many loans currently have a lower interest rate.
An estimated 5.9 million, or 12%, or active loans fit broad-based refinancing criteria, an 8.9 million decline from March of 2013 when rates hit historic lows. Nonetheless, while prepayment rates had dropped 12% in June in the face of rising interest rates, they were still higher than when interest rates were last at this point back in 2011.