The FHA serious delinquency rate is five times higher than the conventional delinquency rate
The nation’s overall mortgage delinquency rates have improved significantly over the last year, according to the latest CoreLogic Loan Performance Insights Report. Data shows the serious delinquency rate for November 2021 declined 1.9 percentage points from 12 months prior to 2%.[1] When compared to the peak serious delinquency rate for mortgages in August 2020, the rate last November was down 2.3 percentage points. Declines in local unemployment rates, a rapid rise in home prices and demand for housing have helped reduce the overall delinquency rate. Loan product mixes also contribute to the national delinquency rate, and this blog explores mortgage default trends by loan type.
As of November 2021, the serious delinquency rates for Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and conventional loans were 7.1%, 4.2% and 1.5%, respectively (Figure 1).[2] The serious delinquency rate decreased for all loan types in November 2021 compared with a year prior when COVID-related delinquencies spiked.
Figure 1: Serious Delinquency Rate for All Mortgage Loan Types Down from Year Prior
Year-over-year, the serious delinquency rate for FHA loans dipped 5.1 percentage points, VA loans dropped 2.3 percentage points and conventional loans decreased 1.5 percentage points when looking at November 2021. Similarly, when compared to October 2021, the serious delinquency rates for FHA, VA and conventional loans were down by 70 basis points, 20 basis points and 10 basis points respectively. The serious delinquency rate for FHA and VA loans in November 2020 reached a high that surpassed even the peak seen post-Great Recession.
CoreLogic data shows the serious delinquency rate for FHA loans was almost five times higher than the serious delinquency rate for conventional loans. Homeowners with FHA loans are more likely to be low-to-moderate income workers, and the pandemic had a greater impact on those homeowners as compared to those with conventional loans.
To provide consumer protections, Congress enacted the CARES Act in March 2020, allowing millions of homeowners to temporarily pause or reduce their mortgage payments.[3] About 45% of all delinquent loans were in a forbearance plan in November 2021 compared to about 67% a year prior.[4] Only about 11% of the seriously delinquent loans were in forbearance in May 2020.
While the share of delinquent loans in forbearance rose during the pandemic, it is now gradually decreasing. Figure 2 illustrates that about 62% of loans that were seriously delinquent in November 2021 were in forbearance.[5] Similarly, 38% of loans that were 60 days delinquent and 18% of the loans that were 30 days delinquent were in forbearance in November 2021. One of the reasons for the falling forbearance rate is that forbearance plans have expired or are expiring soon for many homeowners.[6]
Furthermore, the federal stimulus package, which provided financial support to many borrowers, combined with falling unemployment rates has helped to curb both delinquency and forbearance rates. As the economy continues to recover, both delinquency and forbearance rates are expected to decline.
Figure 2: Share of All Loans in Forbearance by Delinquency Stages (As of November 2021)
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[1] Serious delinquency is defined as 90 days or more past due or in foreclosure proceedings. The serious delinquency rate is the percentage of all loans in a state of serious delinquency.
[2] The analysis is based on the CoreLogic TrueStandings servicing. The CARES Act provided forbearance for borrowers with federally backed mortgage loans who were economically impacted by the pandemic. Borrowers in a forbearance program who have missed a mortgage payment are included in the CoreLogic delinquency statistics, even if the loan servicer has not reported the loan as delinquent to credit repositories.
[3] The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law March 27, 2020, and its forbearance provisions cover the federally backed mortgage lending programs (Fannie Mae, Freddie Mac, FHA, VA, RHS). A borrower with a federally backed mortgage loan experiencing a financial hardship due to the COVID–19 emergency may request forbearance; forbearance shall be granted for up to 180 days and shall be extended for an additional period of up to 180 days at the request of the borrower. A homeowner’s credit score will not be impacted during the forbearance period despite the missed/late payments. Federal regulators extended the forbearance period to a maximum of 18 months.
[4] Thus, a loan that entered forbearance during April 2020 would have had to exit forbearance no later than October 2021.
[5] The analysis is based on CoreLogic Loan-Level Mortgage Analytics. Only servicers providing loan-level forbearance information were included in the analysis.
[6] The maximum forbearance period was 18 months for most of the programs. Thus, a loan that entered forbearance during April 2020 would have had to exit forbearance no later than October 2021.
