Mortgage delinquencies continue decline; RPL market getting stronger

Written By: Joel Palmer, Op-Ed Writer

In another sign that the mortgage industry is continuing its strong recovery, a recent report shows that delinquencies are on a decline while positive trends are occurring within the nation’s pool of reperforming loans (RPLs).

The recent Mortgage Monitor report from Black Knight Financial Services showed a delinquency rate of 4.25 percent in January 2017. This rate measures total U.S. mortgage loans that are 30 days or more past due, but not in foreclosure. The January delinquency rate was down nearly 5 percent from December 2016 and nearly 17 percent on a year-over-year basis. The report noted that the extent of the annual decline is somewhat of an aberration because January 2016 ended on a Sunday and suffered from a calendar-inflated delinquency rate.

There were 2.16 million properties in January that had mortgages at least 30 days past due but not in foreclosure. Just under a third of those (664,000) were at least 90 days past due. On a year-over-year basis, 30-day delinquencies declined 16 percent in January, while 90-day one fell 20 percent.

According to the report, Mississippi, Louisiana, Alabama, West Virginia, and New Jersey have the highest percent of non-current loans. The five states with the lowest percentage are North Dakota, Colorado, Minnesota, Montana and Idaho.

The RPL market, defined as mortgages that are now current but at some point were at least 120 days delinquent, has also been on the upswing. 

As of the January 2017 data, there were 2 million active RPLs. This represented 4 percent of the overall active mortgage market. RPLs have grown about 13 in the last four years. Furthermore, 60 percent of RPLs have maintained that status for at least 24 months, compared with 54 percent a year ago and 34 percent at the end of 2012. 

The average RPL has been in reperforming status for 35 months, well up from the 12-month average in 2010. This indicates a potentially higher level of performance. 

As the report indicates, “performance tends to improve as an RPL becomes more seasoned, but there is apoint of limited improvement that takes place around 24 months, at which point there is relatively similar performance going forward.” 

At the same time, the report cautions that even RPLs with five years or more of seasoning have a higher risk of re-default than mortgages that have not been delinquent.

About 47 percent of RPLs were made possible by a bank’s own proprietary loan modifications. Thirty percent were the result of the government’s Home Affordable Modification Program (HAMP), which expired at the end of last year after seven years. HAMP modified loans forqualified homeowners facing possible through interest rate reduction, fixing the interest rate, principal reduction or forbearance, and term extension.

The remaining 23 percent of RPLs were brought back to current payment status without any loan modifications. 

Although this data points to positive trends, the report also showed that the mortgage industry has yet to make a full recovery. And with higher interest rates looming, it may not for awhile. 

Purchase lending during the fourth quarter of 2016 totaled $1.1 trillion, the highest level since 2016, according to the Mortgage Monitor. The industry has had nine consecutive quarters of double-digit purchase origination growth, and growth overall in 21 of the past 22 quarters.

Despite these gains, the amount is 28 percent below the peak mortgage volume originated in 2005. 

Refinance volume jumped 58 percent between 2015 and 2016, but the trend likely won’t continue. First, prepayment speeds, which have historically served as an indicator of refinance activity, dropped by 30 percent in January due to recent rate increases. Also, there are simply far fewer candidates for refinance because of the heavy recent volume of refinance activity. 

About the Author

As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.