What the Data Reveals About Non-Performing Mortgage Loans

Dec 10, 2020

What does the latest round of mortgage data reveal about the health of the market, the direction it is headed in, and the best moves for investors?

There are a lot of forecasts and rumors about what’s happening and is coming up for the US mortgage and real estate market, as well as the overall economy. Let’s see what the actual numbers say according to the latest stats from Black Knight Mortgage Monitor at the beginning of Q4 2020.

Mortgage Delinquency Trends

At last count mortgage delinquencies were actually declining. With 3.1% fewer mortgage loans less than 90 days late, and 43,000 less serious delinquencies over 90 days late. 

Loan prepayment rates even rose to the highest level in 16 years, with an almost 13% month over month increase in September 2020. 

Mortgage Statistics to Watch

National delinquency rates on first lien mortgages are reportedly less than 7%. In other words, not 2008 crisis levels, but 30% higher than the healthy market of 2000-2005. 

While it seems many borrowers got back on track and cured 30 and 60 day later after the initial pandemic lockdowns, more loans appear to be in late stage delinquency, 90 days plus past due. They may not yet be classified as foreclosures due to forbearance programs, foreclosure moratoriums, or lenders stalling on filing paperwork. 

While delinquency may seem to be falling from the previous peak in the COVID-19 lockdowns, mortgage rates are still dramatically higher than at the peak of the 2008 Great Recession. 300,000 more borrowers are 30+ days late than in 2008. Almost 800,000 more are 60+ days late than in 2008. Yet, there are only around 9% of the number of active foreclosures as the last financial crisis. 

Refinancing rates have also been rising through 2020. That may be a good sign that many are locking in lower rates and stable payments they can sustain through any coming recession or depression. However, if borrowers have simply been extracting equity to get ahead of a perceived correction, or to cover other bills through recent months, this activity could be mimicking the trends of the early 2000s leading up to 2008. 

What’s Next?

Firstly, all data should be approached with the big caveat that mortgage and real estate statistics are notoriously lagging. It takes months for it to be reported. In the past even the National Association of Realtors went back and restated three years of housing data after it finally became impossible to deny the impact of the Great Recession. Most publishers of this data also have their own motivations. Take those into account when evaluating it as well. 

While seasoned investors have continued investing through the pandemic and presidential election, there is obviously still plenty of uncertainty and changes ahead. That’s nothing new. We’ve been living and investing through uncertainty for over a decade. The new administration may unleash a variety of taxes, tax hikes, government subsidies and lockdown restrictions. This may be crushing to the middle class in America. Yet, the upper end of the market may continue to be insulated and even grow wealthier from the chaos, while the lower end of the market sees more financial support. This may bode well for high end flips, workforce housing and Section 8 rentals. 

What are you investing in this month?

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

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