Mortgage Delinquency Rates for All Loan Types Continue to Fall

Loans originated in 2015 and 2016 have performed the best

By Archana Pradhan Mortgage Finance, Risk Management

The CoreLogic Loan Performance Insights Report analyzes mortgage performance for all home loans. Based on this report, the serious delinquency rate for September 2018 was 1.5 percent, representing a 0.4 percentage point decline compared with September 2017.[1] Declining unemployment rates and rising home prices have helped to reduce this delinquency rate. This blog explores trends in the default experience over time by loan type and examines how product mix or loan vintage contributes to the national delinquency rate.

As of September 2018, the serious delinquency rates for Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and conventional loans were 3.7, 1.9 and 1.1 percent, respectively (Figure 1). The serious delinquency rate dropped significantly for all loan types in September 2018 compared with September 2017. These rates represent an 11-year low.

Serious Delinquency Rate by Loan Types

CoreLogic data shows the serious delinquency rate for FHA loans is more than three times higher than the serious delinquency rate for conventional loans. Part of this trend could be the rise in FHA to conventional refinancing since 2013. This refinancing has transferred a large number of current FHA loans into the conventional servicing book and left higher-risk FHA loans outstanding. FHA to conventional refinances accounted for about 10 percent of all refinances in 2017 compared to 2 percent in 2012.[2] In 2016 and 2017, about 550,000 borrowers refinanced from an FHA loan to a conventional loan. By FHA to conventional refinancing, borrowers with good credit history and at least 20 percent home equity can eliminate their mortgage insurance premium.

Serious Delinquency Share by Loan Vintage

A closer look reveals that today’s delinquency rates are influenced by older loans. The bulk of conventional loans that were seriously delinquent were originated between 2003 and 2009 (Figure 2). About 67 percent of the conventional loans that were seriously delinquent in September 2018 were originated between 2003 and 2009 compared to just 23 percent of seriously delinquent conventional loans originated between 2010 and 2018. However, the delinquency rates for government loans were influenced by comparatively more recent loans. About 48 percent of the FHA loans and 69 percent of VA loans that were seriously delinquent were originated between 2010 and 2018.

Serious Delinquency Rate by Loan Types and Loan Vintage

Figure 3 compares the serious delinquency pattern by origination year, including a breakout of conventional affordable housing loans.[3] Each line in the figure represents the serious delinquency rate for loans originated in a given year as a function of the number of months since the loan was originated. Analyzing these vintages shows three important trends.

First, delinquency rates were much higher for all loan types originated between 2006 and 2008. Performance of all types of loans started to improve gradually beginning with the 2009 vintage as the underwriting standards tightened and the economic recovery began mid-2009.[4]

Second, the delinquency rate for government loans was higher than conventional loans.

Third, in general, loans originated in 2015 and 2016 have performed the best, with the lowest 15-month delinquency rate in a decade. The delinquency rate for affordable housing loans originated prior to 2009 were similar to the rates for FHA and VA loans. However, the affordable loans originated in the past three years have a significantly lower delinquency rate than the FHA and VA loans. In fact, the serious delinquency rate for affordable housing loans is only a little bit higher than that of conventional loans.

[1] Serious delinquency is defined as 90 days or more past due or in foreclosure proceedings.

[2] Based on CoreLogic public record data.

[3] Texas, Florida and Puerto Rico were excluded in the comparison of the national delinquency rate for yearly vintages to avoid the effects of the 2017 natural hazards.

[4] The National Bureau of Economic Research has identified the January 2008 through June 2009 period as an economic recession, and recovery began July 2009; see http://www.nber.org/cycles.html.

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