Mortgage Delinquencies Ebb, but Worries Remain

The chasm between those who have thrived and those who are struggling to survive in the pandemic recession persisted through the end of the year, with implications for credit unions and other lenders.

Reports this week showed mortgage delinquency rates remain high – but not as high as late summer 2020.

And while there is hope for more relief from President Biden’s proposed $1.9 trillion pandemic response plan, unemployment persists at high levels and many renters fear they will lose their homes in the next month.

The U.S. Bureau of Labor Statistics reported Feb. 5 that there were 140.9 million non-farm jobs in January, 9.1 million less than a year earlier. The peak drop was in April 2020, when employment was 20.2 million jobs below the year-ago level.

CUNA Chief Economist Mike Schenk said the number of jobs has remained about 6.5% lower than a year ago for the past four months. “That’s kind of a big deal,” he said.

And about two million more Americans are permanently unemployed than in February 2019, while the labor force participation rate has been falling as more Americans give up looking for work.

Those most likely to be out of work are those who had been employed in low-paying occupations at restaurants and stores, Schenk said.

“To the extent credit unions are serving those folks — and we do serve millions of those folks — it’s a worry,” he said.

NAFCU Chief Economist Curt Long pointed to the same weakness, noting the BLS report showed large drops in two of the industries most vulnerable to the COVID-19 impact — restaurants and retail.

“There is still a long road ahead to full employment, and the case for fiscal stimulus got a bit stronger,” Long said.

Schenk said he also supports another round of pandemic relief. “We know it works and it definitely will be needed,” Schenk said.

On Tuesday, CoreLogic reported serious mortgage delinquencies of 90 days or more was 3.9% in November, up from 1.3% a year earlier, but the lowest serious delinquency rate since June 2020.

CoreLogic President/CEO Frank Martell said the consistent decline in serious delinquency is a sign of growing financial stability for families.

“In addition to ensuring that homeowners stay in their homes, the decline in delinquency means fewer distressed sales, which is both a positive for individual households and the overall housing market,” Martell said.

A CU Times analysis of NCUA data showed that among the 10 largest credit unions by assets, the average 60-day-plus delinquency rate for first mortgages was 0.92% as of Dec. 31, up from 0.89% a year earlier and 0.73% in September.

That compared with sharp drops in delinquency rates for credit cards and cars. As a result, the overall delinquency rate among the Top 10 was 0.86% as of Dec. 31, down from 1.07% a year earlier but up from 0.72% in September.

Among all credit unions, CUNA data showed the 60-day delinquency rate for total loans was 0.60% in December, down from 0.70% in December 2019 but up from 0.54% in September 2020.

“That bodes well for credit union asset quality and earnings,” Schenk said.

On Monday, the Mortgage Bankers Association released a survey showing five million households missed at least one rent or mortgage payment in the fourth quarter, down from 6.2 million in third quarter and 11 million in the second quarter.

This marked the third round of the “Housing-Related Financial Distress During the Pandemic” study conducted by the MBA’s Research Institute for Housing America. The surveys have followed the same set of 8,000 households since before the pandemic. The studies were written by Gary V. Engelhardt, an economist at Syracuse University, and Michael D. Eriksen, a real estate professor at the University of Cincinnati.

Overall improvements in the economy since last spring have masked the intensity of struggles for some now.

“The COVID-19 pandemic continues to cause financial stress for millions of Americans, and particularly for those who rent and have student loan debt,” Engelhardt said.

In particular, the MBA study found renters were far more likely to be unemployed and had significantly higher levels of housing insecurity.

On a weekly basis since August, 6% to 8% of renters said they felt that they will be evicted or forced to move in the next 30 days. Up to 5% of renters who missed no payments over the last nine months said they feel they are at risk.

Among homeowners with a mortgage, only 2% to 3% of them said they feel that they will go into foreclosure or be forced to move in the next 30 days. Among those who had not missed any payments over the last nine months, 2% still felt they are at risk.

Renters receiving unemployment benefits rose from 3% at the beginning of April to 7% by the end of September and dropped slowly to just over 6% in December.

Among mortgagors, unemployment has remained at about 3% since the beginning of April.

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