What’s behind the sharp decline in mortgage delinquencies?

MBA data illuminates the trends in the servicing market

As the summer comes to an end, several issues are top of mind for everyone: the impact of the Delta variant, the debate over when the Federal Reserve will taper its asset purchases, the situation in Afghanistan, and the federal debt limit and budget debate.

When it comes to housing and mortgage markets this fall, most attention is being focused on the expiration of eviction and foreclosure moratoria and the pending completion of forbearance terms for many homeowners.

While the pace of mortgage originations has fallen off somewhat this year relative to a record 2020, I expect that servicing will get an increased focus over the next year.

With that in mind, I wanted to review MBA’s latest data on mortgage delinquency, foreclosure, and forbearance rates and provide my thoughts on where these trends are likely headed.

MBA’s National Delinquency Survey (NDS) data for the second quarter of 2021 showed a sharp decline in the mortgage delinquency rate to 5.47%. As shown in Exhibit 1, the delinquency rate tends to be highly correlated with the unemployment rate over time. This was certainly true over the past year, as unemployment spiked during the onset of the pandemic, then has fallen rapidly as the economy has re-opened and rebounded.

Our forecast is for the unemployment rate to continue to decline, reaching 4.5% by the end of 2021, and likely dropping below 4% by the end of 2022. The delinquency rate should follow that downward path closely.

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