Monday, October 05, 2020

Black Knight Mortgage Monitor for August: "At Current Rate of Improvement, Delinquencies Will Remain Above Pre-Pandemic Levels Until 2022"

by Calculated Risk on 10/05/2020 10:23:00 AM

Black Knight released their Mortgage Monitor report for August today. According to Black Knight, 6.88% of mortgages were delinquent in August, down from 7.91% in July, and up from 3.45% in August 2019. Black Knight also reported that 0.35% of mortgages were in the foreclosure process, down from 0.48% a year ago.

This gives a total of 7.23% delinquent or in foreclosure.

Press Release: At Current Rate of Improvement, Delinquencies Will Remain Above Pre-Pandemic Levels Until 2022; Loss Mitigation and High Levels of Equity Help Mitigate Foreclosure Risk

Today, the Data & Analytics division of Black Knight, Inc.released its latest Mortgage Monitor Report ... This month’s report found that – after tracking relatively closely to the deterioration and recovery timelines of recent natural disasters – the trend lines of COVID-19’s impact on mortgage performance have begun to diverge. As Black Knight Data & Analytics President Ben Graboske explained, while this divergence suggests a prolonged recovery period may lay ahead, there are several mitigating factors which together could help lessen the size of a follow-on wave of foreclosures.

“When COVID-19 first began to impact the mortgage and housing markets, there was no easy historical precedent by which to gauge the fallout, so we looked to mortgage performance in the wake of recent recessions and natural disasters for clues,” said Graboske. “And for the first several months of the pandemic, the performance impact of COVID tracked relatively closely to that of major hurricanes. Those trends have since begun to diverge, however, and looking at the 3-month average rate of improvement since May’s peak in mortgage delinquencies suggests a longer recovery timeline. At the current rate of improvement, delinquencies would remain above pre-pandemic levels until March 2022. What’s more, when the first wave of COVID-19-related forbearance plans reach their 12-month expiration period, we would still have a million excess delinquencies. As early-stage delinquencies have already returned to pre-pandemic levels, the bulk of these will be seriously delinquent when the forbearance clock runs out – and serious delinquencies have yet to peak, increasing yet again – albeit more mildly – in August.

“While this may seem to paint a bleak picture for the future, multiple mitigating factors could help to reduce any resulting foreclosure wave. First and foremost, while recovery has been slow and incremental, the bulk of homeowners who have come out of forbearance are currently performing on their mortgages. That’s roughly a third of the 6.1 million homeowners who’ve been in forbearance at one time or another since the pandemic began. Of those no longer in forbearance but still past due, the vast majority — some 267,000 — are in active loss mitigation programs with their lenders. Just 54,000 loans at present represent significant risk – having left forbearance, are past due and not engaged in loss mitigation efforts. Seventy percent of those were already delinquent in February, before COVID became a factor. Furthermore, American homeowners now have the most equity available to them in history. Of those in forbearance, just 9% have less than 10% equity in their homes, which offers both borrowers and lenders multiple options in lieu of foreclosure.”
emphasis added
BKFS Click on graph for larger image.

Here is a graph from the Mortgage Monitor that shows the National Delinquency Rate.

From Black Knight:
• The chasm between early-stage delinquencies and seriously past-due mortgages continued to widen in August

• Overall delinquencies nationwide fell by 0.03% from July after declining a combined 0.85% over the prior two months, a noticeable slowing in the rate of improvement

• The share of borrowers with a single missed payment had already fallen below pre-pandemic levels; in August, the sum of all early-stage delinquencies (those 30-and 60-days past due) fell 9%, to drop below that benchmark as well

• However, the improvement in early-stage delinquencies was offset by a 5% increase in serious delinquencies – 90 or more days past due – which have now risen in each of the past five months

• At 6.88%, the national delinquency rate is now 3.6% above its pre-pandemic level
There is much more in the mortgage monitor.