The June Mortgage Monitor report released by Lender Processing Services Inc. (LPS) has found that the nearly 10 percent spike in the national delinquency rate reported in the company’s “First Look” at mortgage performance was based on approximately 700,000 newly 30-day delinquent loans in June. As LPS Applied Analytics Senior Vice President Herb Blecher explained, the spike -- while large -- should be seen in the proper context.
“June’s increase in delinquencies is representative of a documented seasonal phenomenon,” Blecher said. “Over the last 18 years, similar changes occurred in June for all but four of those years. And this month’s increase was felt across all 50 states -- from a roughly 14 percent month-over-month rise in 30-day delinquencies in Nevada to a nearly 32 percent upswing in Colorado. Additionally, we examined the data to see the effect of recent increases in interest rates on delinquency rates and found no significant impact thus far. Adjustable-rate mortgages (ARMs), which one would expect to be impacted most by such interest rate changes, actually saw delinquency rates rise at a lower relative rate than those of fixed-rate mortgages.
“Of course, focusing solely on month-to-month shifts in mortgage performance can be like tracking the stock market on a daily basis,” Blecher continued. “You may see periodic spikes and dips, but without a longer-term perspective, you lack a clear picture of how the market is actually performing. Though June’s 9.9 percent spike was indeed significant -- and a reversal of five consecutive months of declines -- on a quarterly basis, the rise was much more moderate than the historical average. Since 1995, delinquency rates have risen from Q1 to Q2 in all but two years, with an average seven percent increase. By comparison, the 2013 Q1 to Q2 increase was just 1.34 percent.”
Looking further into the impact of mortgage interest rate changes, LPS re-examined the pool of potential refinanceable mortgages and found that, despite improved equity situations nationwide, fewer loans have refinanceable characteristics at the new rates, as many loans currently have a lower interest rate. Approximately 12 percent of active loans, about 5.9 million, fit broad-based refinanceable criteria, down from 8.9 million in March of 2013 when rates were at historic lows. Still, while prepayment rates (historically a good indicator of refinance activity) had declined 12 percent in June in the face of rising interest rates, they were higher than when interest rates were last at this point back in 2011. As reported in LPS' First Look release, other key results from LPS' latest Mortgage Monitor report include:
►Total U.S. loan delinquency rate: 6.68 percent
►Month-over-month change in delinquency rate: 9.91 percent
►Total U.S. foreclosure presale inventory rate: 2.93 percent
►Month-over-month change in foreclosure presale inventory rate: -3.92 percent
►States with highest percentage of non-current loans: FL, MS, NJ, NY, ME
►States with the lowest percentage of non-current loans: WY, MT, AK, SD, ND