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Weaker economy, inflation caused mortgage delinquency uptick in Q4

The delinquency rate for mortgage loans rose to a seasonally adjusted rate of 3.96% in Q4 2022

The overall national mortgage delinquency rate rose in the fourth quarter of 2022, due in part to a weaker economy and ongoing inflationary pressures.

The delinquency rate for mortgage loans on one- to four-unit residential properties rose 51 basis points from the previous quarter to a seasonally adjusted rate of 3.96% of all loans outstanding in the fourth quarter of 2022, according to the Mortgage Bankers Association (MBA).

“As expected, the overall national mortgage delinquency rate increased in the fourth quarter of 2022 from its previous quarterly survey low,” Marina Walsh, MBA’s vice president of industry analysis, said.

For the past 15 years, mortgage delinquencies have tracked very closely with employment conditions, Marina Walsh, MBA’s vice president of industry analysis, noted. 

While recent indicators pointed to resilience in the job market, the MBA forecasts slower hiring and rising unemployment, with the interest rates hitting 5.2% by the end of 2023. This in turn, will likely mean further increases in mortgage delinquencies, the MBA said. 

Nonfarm payrolls increased by 517,000 jobs in January from December — far higher than the 187,000 market estimate. The unemployment rate declined to 3.4% during the same period — lower than the expected rate of 3.6% — which marked the lowest jobless level since May 1969. 

Delinquency rates — which includes loans that are at least one payment past due but does not include loans in the foreclosure process — rose across all loan types and stages of delinquency.

The FHA loan delinquency rate rose the most by a whopping 209 bps to 10.61% in the fourth quarter from the previous quarter. Delinquency rate for VA loans followed, increasing by 45 bps to 4.16%, and conventional loans trailed, increasing 26 bps to 2.78% quarter-over-quarter. 

By stage, the 30-day delinquency rate increased 26 bps to 1.92% from the previous quarter. The 60-day delinquency rate rose 13 bps to 0.66%, and the 90-day delinquency bucket climbed 11 bps to 1.38% during the same period.

Despite the fourth-quarter increase in mortgage delinquencies, the foreclosure starts rate of 0.14% was well below the historical quarterly average of 0.40%. 

Tappable equity — the share of equity that could be withdrawn while still maintaining an 80% or lower loan-to-value ratio — fell by $1.8 trillion over the past two quarters, Black Knight noted in its recent mortgage monitor report

Softening home prices continued to impact borrowers’ equity positions, with mortgage holder equity falling by $2.3 trillion — a 13% decline — over the past two quarters. 

Despite the fall in equity levels recently, accumulated equity is proving to provide options to avert foreclosure.

“Many distressed homeowners have loss mitigation options available to them and have accumulated home equity, which can ease financial hardship and avert foreclosure actions,” Walsh said. 

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