Government-backed loans can be an early indicator of mortgage stress because borrowers tend to have less of a financial buffer against hardships than others, and in that regard Intercontinental Exchange‘s November mortgage performance numbers are notable.
Total delinquencies remain historically low compared to last year and prior to the pandemic at 3.39%, even with a small seasonal uptick; but Federal Housing Administration-insured and Department of Veterans Affairs-guaranteed loans were another matter.
Outside of an unusual spike early in the pandemic, past dues for FHA loans overall were the highest they’ve been in nine years, the company reported in its First Look report on November’s data.
And early indications of payment troubles for mortgages in the VA sector also were notable on a historical basis. With the pandemic period excluded, VA delinquencies were the highest they’ve been since 2009.
“Both segments bear watching in the months ahead,” ICE said in a press release.
That said, the mortgage market’s broad loan performance remains healthy, with investors generally showing little concern about credit because delinquencies are still at historically low levels and many loans do have government-related backing.
“Keep context in mind. Delinquencies are up slightly, but they’re up from all-time record lows,” said Vadim Verkhoglyad, vice president and head of research at capital markets fintech Dv01. “The overall mortgage market set record low delinquency rates twice in 2023.”
After government-backed loans, mortgages in private portfolios and securitizations tend to be the next most sensitive to hardships that can cause performance concerns, as the level of dwindling pandemic-dominated forbearance within it has consistently shown.
The share of FHA and VA loans in forbearance during November was 0.47%, compared to 0.30% for mortgages held in portfolio and private-label securities, and 0.16% for Fannie Mae- and Freddie Mac-backed financings.
Performance has held “really steady” in private securitizations, said Jack Kahan, senior managing director and head of the residential mortgage-backed securities group at Kroll Bond Rating Agency, during a recent press conference on the PL RMBS outlook for next year.
It could potentially be a little weaker next year, but there hasn’t been a lot of investor concern about it, he said.
“We’re still facing some choppy waters relative to the economy,” Kahan added. “Things could change with unemployment, things could change with employment and things could change with interest rates. There still is some volatility around those areas and so that’s something that we have to look at.”
Geopolitical tensions also could have an impact on loan performance, he noted.
Within the non-qualified mortgage sector, trends are in line with the broader market in terms of delinquencies and impairments remaining historically low despite a near-term uptick. These metrics are up more than 100 basis points from Summer 2022 lows, Dv01 found.
Strong home price appreciation continues to bolster performance, Verkhoglyad said.
“Delinquency isn’t translating to any material losses, which is all that really matters,” he added, noting that the cumulative loss on Dv01’s non-QM benchmark is less than 0.1% and no individual non-QM securitization has a cumulative loss rate above 0.5%.
Meanwhile, bank portfolio delinquencies also have been relatively low, according to the Office of the Comptroller of the Currency, which found that 97.3% of mortgages from regulated institutions were current and performing in the third quarter, compared to 97.2% the previous one.
Distress generally has been lowest in the Fannie/Freddie Mac market, a new report from their regulator, the Federal Housing Finance Agency, confirmed on Thursday.
The serious delinquency rate for Fannie and Freddie was 0.54% during the third quarter, compared to 3.34% for administration-insured loans and 1.99% for mortgages that the VA guarantees, the agency reported.
Delinquency measures vary by data source but many recently have borne out the same relative trends.
