Understanding Mortgage Delinquencies: Q3 2024 Insights
 

ForeclosureNewsQ3 Mortgage Delinquencies Dip

December 9, 2024

The mortgage landscape in the United States experienced a slight shift in the third quarter of 2024, as recently released data from the Mortgage Bankers Association’s (MBA) National Delinquency Survey show a subtle but notable change. According to the MBA’s findings, the delinquency rate for mortgage loans on one- to four-unit residential properties stood at an adjusted rate of 3.92% at the end of Q3 2024.

While this figure represents a small five-basis-point decline from the previous quarter, it is important to note that it still marks a 30-basis-point increase compared to one year ago. The overall picture is mixed—delinquencies remain low by historical standards, yet there is a subtle upward trend over the past year, suggesting that market conditions are in flux.


2024 Percentages in Q3


 

The National Delinquency Survey’s definition of delinquency includes loans that are at least one payment past due but have not yet entered the foreclosure process. In Q3 2024, the foreclosure start rate saw a slight uptick, rising by one basis point from Q2 to 0.14%.

Although an increase of one basis point is modest, any upward movement in foreclosure starts can be significant when considering the broader health of the housing market. Foreclosure starts are a key metric: they serve as an early warning sign that a segment of homeowners is struggling to meet their obligations. The fact that starts nudged upward at all may signal that certain borrowers are feeling increased pressure, whether from rising interest rates, employment changes, or other economic headwinds.

Early and Late-Stage Delinquencies

Marina Walsh, CMB, MBA’s VP of Industry Analysis, offered insights into what the data mean for the current market environment. According to Walsh, mortgage delinquencies have indeed inched up over the past year. The Q3 decline in the overall delinquency rate compared to Q2 can be explained largely by a drop in 30-day delinquencies.

Early-stage delinquencies, which represent homeowners who have only recently missed a payment, fell in Q3. This could suggest that the immediate shock of rising interest rates or inflationary pressures has eased for some borrowers. Perhaps certain homeowners adjusted their budgets or took on additional work to stay current on payments.

On the other hand, later-stage delinquencies increased, pointing to more homeowners who have been struggling for longer periods. This scenario could mean that while some households overcame short-term financial issues, others are slipping deeper into trouble, missing payments for multiple months and putting themselves at risk of foreclosure.


Delinquent loans


 

Loan Types and Delinquency Patterns

On a quarter-over-quarter basis, the total delinquency rate for conventional loans dipped by one basis point to 2.63%. Meanwhile, loans backed by the Federal Housing Administration (FHA) saw their delinquency rate decrease by 14 basis points to 10.46%, and Veterans Affairs (VA) loans experienced a five-basis-point decline, reaching 4.58%. These quarter-over-quarter declines are encouraging signals, suggesting that at least some borrowers with government-backed loans managed to improve their standing.

However, comparing the Q3 2024 data to the previous year’s figures tells a different story. Over the last year, total mortgage delinquencies have increased for all major loan categories. Conventional loans rose by 13 basis points in delinquency rate, FHA loans by 96 basis points, and VA loans by 82 basis points. This year-over-year increase is more concerning, indicating that the underlying economic conditions may have become more challenging for borrowers over time.

The seriously delinquent rate—a measure that includes loans 90 days or more past due or those in the foreclosure process—is also worth examining closely. By the end of Q3 2024, the seriously delinquent rate was at 1.55%, up by 12 basis points from the previous quarter and three basis points above the level recorded one year ago. A rise in serious delinquencies indicates that some borrowers are not just missing one or two payments but are falling significantly behind, reaching a stage where catching up without assistance becomes increasingly difficult.

For conventional loans, the seriously delinquent rate increased by five basis points from Q2, but interestingly, it still stands three basis points lower than a year ago. FHA loans, however, present a different trend, with seriously delinquent rates increasing by 46 basis points from Q2 and a more substantial 29-basis-point jump over the past year. VA loans have also seen their seriously delinquent rate climb by 19 basis points over the quarter and 27 basis points compared to a year ago. These shifts hint at particular stress among borrowers with FHA and VA loans, who may be more sensitive to economic changes or have fewer financial resources to draw upon when difficulties arise.


Geographic Factors


 

Geographic Factors Influencing Delinquencies

Geography also plays a role in the dynamics of delinquency rates. Certain states experienced notable quarterly increases, a signal that localized economic or environmental factors may be at play. Texas led with a 24-basis-point jump in overall delinquency, followed by Arkansas (14 basis points), Florida (13 basis points), Arizona (12 basis points), and Wyoming (9 basis points).

The reasons behind these localized increases could range from job market changes, local economic slowdowns, or even the impact of natural disasters. For instance, areas dependent on a particular industry might have faced economic shocks, leading to higher delinquency levels. Regions hit by storms or other catastrophic events often see a delayed but noticeable effect on homeowners’ ability to keep up with their mortgage payments.


Satellite perspective of hurricane near Florida


 

Impact of Hurricanes Helene and Milton

Hurricanes Helene and Milton, both significant storms that struck near the end of Q3 and into early Q4, may well influence the next round of data. The MBA’s National Delinquency Survey has yet to capture the full impact of these events, as mortgage delinquencies related to disasters typically appear in the data after some lag.

According to the National Hurricane Center (NHC), Hurricane Helene made landfall in Florida’s Big Bend region on September 27, packing sustained winds of around 140 miles per hour. CoreLogic estimates suggest Helene’s insured wind and storm surge losses could range between $3 billion and $5 billion, with the true figure depending on the exact contours of its wind field.

While these figures do not directly translate to mortgage delinquency numbers, major property damage, displacement, and economic losses can hinder homeowners’ ability to keep up with mortgage obligations in the months that follow.

Hurricane Milton presents an even more substantial financial toll, with insured wind and flood losses estimated between $17 billion and $28 billion, and total damage between $21 billion and $34 billion when uninsured property is included. Such widespread destruction often leads to increased strain on homeowners.

Even with insurance payouts, the timeline for rebuilding and repairing damaged properties can leave homeowners in precarious financial positions. This, combined with the potential interruption in business, employment, and local economic activity, can contribute to rising delinquencies in the future.

Preparedness and Economic Outlook

Another factor to watch is how lenders, insurers, and government programs respond to these disasters. Historically, when large-scale disasters strike, mortgage lenders and servicers sometimes offer temporary relief to affected borrowers, such as forbearance programs or streamlined loan modification processes. Government agencies may also step in to provide special relief measures. These actions can dampen the immediate rise in delinquencies, spreading any upward pressure on the numbers across a longer period rather than showing a sharp increase in a single reporting cycle.

Looking ahead to the next few reporting periods, the mortgage market must navigate both the standard economic pressures—such as changes in employment rates, interest rates, and home values—and the additional complexity introduced by environmental events like hurricanes. Borrowers who live paycheck-to-paycheck or have limited savings are more vulnerable to financial shocks. If rising delinquencies in certain states correspond to broader economic issues or natural disasters, then future data might show a continued trend toward more serious delinquencies and possibly more foreclosure starts.

It is also important to consider the broader economic environment at the time of these Q3 measurements. Inflation concerns, interest rate movements, and changes in lending standards all contribute to the delicate balance of mortgage delinquency rates. For instance, higher interest rates might make refinancing more difficult, removing a tool homeowners often use to lower their monthly payments. If homeowners cannot adjust their loans or find ways to reduce their expenses, they could be at a higher risk of slipping into delinquency as rates and prices rise.

The fact that year-over-year delinquencies have generally increased should serve as a cautionary note. While the real estate market and the lending industry are more stable now than they were during the mid-2000s housing crisis, financial vulnerabilities remain. Regulatory changes and improved underwriting standards over the years have helped maintain lower delinquency rates, but economic cycles still exert influence. Borrowers who took out mortgages under certain conditions may find themselves struggling if their personal financial circumstances have changed.

A Mixed Picture for the Mortgage Market

In summary, the Q3 2024 data from the MBA’s National Delinquency Survey highlight a mixed landscape. On the one hand, delinquencies remain relatively low in historical terms, and the slight quarter-over-quarter decline in overall delinquencies offers a modestly positive sign. On the other hand, the year-over-year data and the increase in later-stage delinquencies point to underlying stress in the market. Some borrowers are falling deeper into trouble, and serious delinquencies are edging upward for most loan types, especially FHA and VA loans.

With hurricanes Helene and Milton poised to impact future data and with certain states already seeing more pronounced increases in delinquencies, the next few quarters may provide a clearer picture of how resilient the mortgage market truly is in the face of both natural disasters and ongoing economic challenges. For now, the message is one of cautious observation: the numbers may still be low by historical benchmarks, but subtle shifts suggest that homeowners, lenders, and policymakers should remain vigilant as they navigate an uncertain environment.



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