Sharp 2021 drop in foreclosure/delinquency - serious delinquency still elevated

At the end of 2021, mortgage foreclosures had hit an all-time record low while the delinquency rate was only 0.10% higher than the historic low of 3.28% hit in February 2020 - just before the pandemic hit - according to data released this morning by Black Knight.

This constitutes a dramatic turnaround from the early days of Covid 19. The delinquency rate, now 3.38%, has been reduced by 45% over the last 12 months and the number of mortgage-holders who are now 30 days overdue but not in foreclosure has dropped below 1.8m for the first time since before March 2020.

Loan in serious delinquency (those 90 or more days overdue) fell another 80,000 in December to below 1m to 946,000.

However, there are still more than twice as many excess serious delinquencies (borrowers who owe more than $500,000) than before the pandemic.

“After the turmoil of the last 22 months, it is certainly good – and somewhat remarkable – that delinquency rates have fallen to a point just 0.1% higher than before the pandemic’s onset. That said, there is still meaningful risk in the market, with nearly two and a half times as many serious delinquencies as there were pre-pandemic and forbearance protections ending. It’s critical to keep a close eye on mortgage performance and foreclosure metrics as we move forward in 2022, particularly in the early part of the year,” Black Knight chief economist Andy Walden told SCI today.

The total number of properties in the US that are 30 or more days past due or in foreclosure is 1.92m, 1.5m lower than December 2020.

Strikingly, foreclosures remain very limited. Only 0.24% of all loans are in active foreclosure, which represents another all-time low, while the 4,100 foreclosure starts recorded in December are 90% below the level seen two years earlier.

But, as a large number of borrowers exited forbearance plans in the last few months, the foreclosure rate may be subject to upward pressure.

The top (that is to say worst) five states for the percentage of properties that are more than 90 days’ delinquent are Louisiana, Mississippi, Oklahoma, Alabama and Arkansas. Louisiana has a serious delinquency rate of 3.84%, but this is almost 40% lower than a year ago.

Prepayment rates fell sharply in December by more than 7%, and this trend is very likely to gather pace given falling stocks and rising rates.

Simon Boughey