According to a recent study released by CoreLogic called the Loan Performance Insight Report, delinquency on mortgage payments is at the lowest rate in nearly a decade. The report shows that this trend is true across a number of different metrics.
For instance, the current rate of delinquency, defined as 30 or more days delinquent on a payment, was 4.5% in May 2017. Compared to the previous year in May 2016, that is lower by 0.8% when it was 5.3%. In addition, foreclosures are also down over the same time period with 0.7% in 2017 compared to 1.0% the year prior. A similar trend for serious delinquency rate (90 or more days) was discovered.
The report from CoreLogic offers some reasons that these numbers look so favorable for the mortgage industry. Fewer delinquencies mean that more borrowers are successfully maintaining their mortgage repayments. It’s important to understand the health of the mortgage market. A great deal of insight can be gathered from examining late payments and their patterns.
Employment rates have improved since the housing bubble burst back in 2008, when many Americans were put out of work. At its peak, civilian unemployment rose to 10.0% October 2009. This peak of unemployment during the Global Financial Crisis was the highest in more than 25 years. Ten percent is more than double the rate from two years before.
That number has consistently dropped over the previous eight years until now. Currently, the unemployment rate is hovering around 4.5% or lower. Hundreds of thousands of jobs are being created each month. More Americans working and earning a stable income is a huge factor in a healthy mortgage market.
Home prices have been consistently on the upward trend, as well. When the housing market crashed in 2008, banks were limited in their ability to underwrite mortgage applications. Housing prices plummeted. Fortunately, as the job market and economy have recovered, housing prices have risen, as well.
One of the biggest reasons that home prices have been so strong is that many of the home builders left the industry during the Great Recession and that labor shortage persists. The inventory of new homes, particularly starter homes, is sparse. It means that the limited inventory that is currently on the market is highly competitive among bidders.
Legislatively, the federal government tightened underwriting criteria substantially after the market crash. There were mortgage programs that offered loans to borrowers with little income or assets. These mortgages, colloquially known as NINJA loans, are no longer viable with the current lending environment mandated by the government.
Most of the mortgages that have been underwritten since the housing bubble burst were very conservative on lender’s risk. This means that delinquency rates are obviously going to be lower, but at the cost of facilitating potential mortgages for other types of borrowers.
Pacific Union Financial
Pacific Union Financial, LLC is a full-service mortgage lender providing originations and loan servicing across the United States. A privately held direct lender with Fannie Mae, Freddie Mac, and Ginnie Mae approval, we originate loans through our Retail, Wholesale, and Correspondent channels. Let us know how we can help you expand your business.