Delinquencies Rose Again In February, But Prepayment Activity Is Up
Delinquencies across the nation rose in February to 3.45% as economic pressures squeeze Americans, but remain down from last year, Black Knight reported.
Black Knight’s First Look at February 2023 data found that delinquent loans that are only a single payment behind overwhelmingly accounted for the increase. The 36,000 delinquency rise was driven by a 65,000 increase in first-time missed payments.
Delinquencies of 60 and 90 days both fell, down by 12,000 (-4%) and 17,000 (-3%) respectively.
Nearly all fifty states saw their serious delinquencies improve. On the other end, foreclosure starts also improved, breaking a streak of increases with a 9% dip. Starts remain almost 20% below pre-pandemic levels.
Active foreclosure inventory increased slightly and is up 15% from February 2022. However, it remains 15% below pre-pandemic levels.
Americans are being squeezed by sticky inflation, which persists despite months of rate hikes from the Federal Reserve.
This is causing a jump in missed payments, especially for auto loans and credit cards. There were 18.3 million borrowers behind on a credit card at the end of 2022, compared to 15.8 million at the end of 2019. Debt is up as well– 35% of adults say their household debt is higher than at the same time last year.
Marina Walsh, CMB, MBA’s Vice President of Industry Analysis, notes that mortgages are seeing fewer missed payments than other types of debt, but that could worsen in the year ahead.
“[W]ith the possibility of a recession this year, we may see some deterioration in performance – particularly for government loans,” she said of delinquencies.
At the same time, prepayment activity rose from record lows for the first time in four months. Black Knight expects relief to continue into the spring homebuying season.
“Prepayment activity ticking up slightly in February is an underlying indicator that both refinance and purchase origination volumes may have reached their cyclical lows,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.
“If home sale-related prepayments were to follow that typical seasonal pattern this year it would provide a 40-50% tailwind for overall prepayment speeds in coming months. While they are still expected to remain historically low, that seasonal pattern would continue to pull them off their current record lows.”
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