Delinquencies Rise But Loss Mitigation Efforts Prevent Foreclosure

By KIMBERLEY HAAS

Distressed homeowners who get behind on their mortgage bills are avoiding foreclosure.

The Mortgage Bankers Association’s National Delinquency Survey was released last week and it showed that delinquencies increased in the third quarter to a rate of 3.62%, up 25 basis points from the second quarter and 17 basis points from a year ago.

Marina Walsh, MBA’s vice president of industry analysis, said that despite the increase, later-stage delinquencies – those 90 days or more past due – declined to the lowest level since the first quarter of 2020.

“The decline in later-stage delinquencies, along with a foreclosure starts rate of 0.14% – which is well below the historical quarterly average of 0.40% – suggest that distressed homeowners may be utilizing available loss mitigation options that prevent a foreclosure start,” Walsh said in a statement.

Walsh added that accumulated home equity may also be enabling some homeowners to avoid foreclosure by selling their homes.

MBA analysts forecast slower hiring and rising unemployment, with the rate rising to 5% by the end of next year. The increase in unemployment will likely mean further increases in mortgage delinquencies, particularly for FHA borrowers, Walsh said.

Some industry leaders say they also expect more borrowers to find themselves in trouble and in need of additional support.

Donna Schmidt, cofounder of WaterfallCalc, says that she expects a continued increase in defaults, especially with first-time homebuyers who may have gotten themselves in over their heads with high housing costs combined with modern mortgage rates.

“I believe there is going to be an increase in defaults coming. Not so much with Fannie and Freddie, Fannie and Freddie borrowers are a little more savvy, a little more responsible. The FHA borrowers differ, primarily because there are lower underwriting standards to get into an FHA loan, but the other side of the coin is the vast majority of them are first-time homebuyers. They’re just not taught to be responsible,” Schmidt told The Mortgage Note.

WaterfallCalc provides loss mitigation technology for small and mid-sized mortgage servicers. Leaders at the company recently announced the release of WaterfallCalc+, which enables distressed borrowers to apply for assistance through their phone, tablet, or personal computer.

Servicers can then manage the entire loss mitigation application process, from reviewing new submissions to tracking existing applications, using a dashboard customized for them, according to a press release.

“It allows the servicer to identify who needs assistance, whether it’s because the borrower called and requested it, or whether the loan is now delinquent, and then the servicer can issue an invitation to the borrower so they know it’s legit, that the borrower can then answer some questions and upload their documentation right from their phone,” Schmidt said.

Schmidt, who has been in the industry for over 40 years, said the goal is to increase the number of borrowers who submit loss mitigation applications because that helps the servicer, but they also want to help borrowers by making it as easy as possible on them.

Schmidt said the system is intuitive enough that borrowers who find themselves in trouble can provide what they need to while watching Monday Night Football.

How many households are in trouble?

On Tuesday, ATTOM released its U.S. Foreclosure Market Report for the month of October, which shows that nationally there were 34,472 properties with default notices, scheduled auctions, or bank repossessions filed.

That was down 6% from a month ago but up 6% from a year ago.

Rob Barber, CEO of ATTOM, said while they anticipate a decline in foreclosures during the holiday season, they do foresee a continued uptick in 2024 as filings make their way through the pipeline.

“Foreclosure filings continue to paint a concerning picture,” Barber said. “With foreclosure filings ranging from 31,557 in January 2023 to 34,472 in October 2023, it’s evident that challenges in the housing market persist.”

The states with the largest number of foreclosure starts last month included Texas, California, Florida, New York, and Georgia.

States with the highest foreclosure rates were Delaware, Ohio, New Jersey, Maryland, and South Carolina.