Following an increase in mortgage delinquency rates at the end of December, attributed to processing delays due to the month ending on a Sunday, January has brought a significant reversal of this trend, as expected.
According to recent data analysis by Intercontinental Exchange, Inc., the national delinquency rate dropped by 5.48% (or 19 basis points) from December to 3.38%, marking its lowest level since October of the previous year. This rate remained essentially flat when compared year-over-year.
The improvements in delinquency were widespread, with reductions observed in both new delinquencies and loans progressing to later stages of delinquency, known as roll rates. Additionally, the number of seriously delinquent loans (those 90+ days past due) saw a substantial 19% year-over-year decline, totaling 470,000.
Despite these positive trends, foreclosure starts experienced a notable month-on-month increase, rising by 43% to 34,000, the highest figure seen since April 2022. However, analysts attribute this jump primarily to seasonal pressures rather than any fundamental increase in foreclosure activity.
To put the increase in perspective, the 43% month-on-month jump translates to just an additional 7,000 loans in active foreclosure. Moreover, the total number of loans in active foreclosure, currently standing at 219,000, remains 23% lower than pre-pandemic levels, indicating a relatively contained risk in the near term.
Donna Schmidt, founder and managing partner of DLS Servicing, said it's a sign of inflationary pressures finally hitting housing.
"It will be critical for mortgage servicers to beef up their loss mitigation outreach, not just for home retention options but also for short sales and Deeds in Lieu of Foreclosure," Schmidt said. "A robust, well-rounded loss mitigation approach will help to reduce potential servicing losses. But servicers must be proactive and persistent through the foreclosure process."
However, with serious delinquencies at historically low levels and the majority of them still protected from foreclosure, experts suggest that the immediate risk remains minimal, though any increase in foreclosure activity warrants monitoring.
Meanwhile, prepayment activity experienced a slight uptick due to easing rates in December and January, with single-month mortality rising to 0.39% of outstanding mortgage debt. While this figure remains historically low, the increase in refinance activity is seen as a positive development for the mortgage industry amidst ongoing market fluctuations.
