The US mortgage market is finally turning around on default rates.

The nations Total failure rate, i.e. residential mortgages that are 30 days or more past due, including those in foreclosure, was 4.7% as of April 2021. Compared to April 2020, which had an overall default rate of 6.1%, April 2021 saw a decrease of 1.4 percentage points compared to the previous year.

This overall change in the default rate represents the first year-on-year decline and the lowest overall default rate since the beginning of the pandemic and Recession 2020, according to CoreLogic.

Although the overall failure rate is lower, heavy default interest – Mortgages that are 90+ days past due – keep rising.

Mortgage Default Rates in April 2021 were:

  • 1.0% for early payment defaults, compared to 4.2% a year earlier when defaults increased for the first time;
  • 0.3% for 60- to 89-day payment defaults, less than 0.7% a year earlier; and
  • 3.3% for 90+ days payment defaults, compared to 1.2% in the previous year.

Here in California, 7.4% of homeowners with mortgage loans in July 2021 said they were behind on their mortgage payments, according to the latest budget data from the US Census Bureau.

More than 90 days of failures increase

Despite declining total defaults, delinquent homeowners continue to default on their payments, raising doubts that they can make up or resume their payments without major intervention.

The nationwide Foreclosure moratorium is expected to expire on July 31, 2021. Homeowners who cannot be up to date by the expiration date may be able to: a Forbearance program. The registration period for forbearance programs remains open until September 30, 2021. To apply for mortgage forbearance, homeowners are advised to contact their property manager.

According to the Mortgage Bankers Association (MBA), as of July 11, 2021, 3.5% of mortgages, or 1.75 million homeowners, are on deferral.

Additional grace periods have been proposed by the Consumer Financial Protection Bureau (CFPB) to prepare for the onslaught of homeowners who step out of the toleration after the foreclosure moratorium is lifted in the second half of 2021 Main residence until after December 31, 2021, according to the final rules of the CFPB published on June 28, 2021.

With California jobs still down 1.4 million from their pre-recession peak in December 2019, many homeowners have no way of paying their mortgages. [See RPI e-book Real Estate Economics Chapter 1.2]

Most failures are not cured until:

  • Jobs are returning;
  • Homes are forcibly sold; or
  • Servicers work with homeowners to grant loan changes.

Today's defaulting mortgages are similar to a Shadow inventory of future distressed sales. Although they are not yet available in the market, they will eventually be added to inventory when the moratorium on foreclosure, deferral programs, and grace periods expire.

Expect an inventory inflow through 2022 that will pull home prices down. The economic recovery will not occur until a significant job recovery is underway, a situation that is unlikely to happen until 2024-2025. However, that schedule depends on government intervention to encourage job creation and further extensions of the moratorium on foreclosure.

Related article:

Delinquent homeowners have failed to take advantage of the forbearance programs

source https://seapointrealtors.com/2021/07/31/mortgage-delinquencies-see-first-year-over-year-decline-since-the-2020-recession-with-a-caveat/

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