Recently the Federal Housing Finance Administration (FHFA) — conservator of Federal National Mortgage Association and Federal Home Loan Mortgage Corporation — extended the moratorium for both evictions and foreclosures until the top of the year. many householders breathed a sigh of relief.
Indeed, over the past few months the amount of borrowers with active forbearances has declined. But that’s no reason for optimism. The more serious matter is what percentage homeowners are now delinquent. By the top of 2020, several million borrowers who have received mortgage forbearance will have gone nine months without making a mortgage payment.
What impact will this wear U.S. housing and mortgage markets? Let’s start with FHA-insured loans. consistent with HUD’s July 2020 “Neighborhood Watch” report, 17% of 8 million insured mortgages are now delinquent. This percentage includes mortgages in forbearance also as those not in forbearance. Hard-hit metropolitan areas include ny City with 27.2%, Miami with 24.4% and Atlanta with 21%.
Another reason for alarm is that the private, non-guaranteed (non-agency) securitized mortgages that return to the crazy bubble years and which are still active. These were the many sub-prime and other non-prime loans that were egregiously underwritten, many fraudulently.
At the height of this activity in late 2007, quite 10 million of those mortgages were outstanding with a complete debt of quite $2.4 trillion. As recently as early 2018, 25% of all delinquent borrowers nationwide had not made a mortgage payment in a minimum of five years. In ny State, New Jersey and Washington, D.C., that percentage was quite 40%.
Keep in mind that these extremely high delinquency rates existed well-before the COVID-19 pandemic erupted. Since March of this year, delinquency rates for subprime mortgages reversed a 10-year decline and climbed to 23.7% in July, consistent with TCW’s most up-to-date Mortgage Market Monitor report. Other non-prime bubble-era mortgage delinquency rates also were substantially higher.
According to Inside Mortgage Finance, mortgage servicers had eased the pain for owners of those non-guaranteed mortgage-backed securities (RMBS) by advancing the delinquent principle and interest to them. But in TCW’s latest report, nearly one-third of those delinquent payments had not been advanced to the owners at the top of July.
Read: Wall Street home loans aren’t looking great during this crisis
Plus: because the real-estate market heats up, here’s how first-time buyers can keep their cool
The Dodd-Frank legislation of 2010 attempted to remedy the issues that had led to the housing collapse. It created a replacement standard for lower-quality loans, which were named non-qualified mortgages (non-QM). These were mortgages that didn’t meet Federal National Mortgage Association or Freddie Mac’s underwriting standards and hence couldn’t be guaranteed by them. The delinquency rate for these mortgages soared during the COVID-19 lockdowns and stood at 21.3% at the top of June.
As for Federal National Mortgage Association , $203 billion of the loans guaranteed by them were in forbearance as of June 30. New York, Florida and New Jersey had forbearance rates in double digits. Of the $100 billion in bubble era loans still guaranteed by Federal Natio
nal Mortgage Association , 15% were in forbearance. In its second quarter 2020 10-Q financial report, the agency showed $194 billion of seriously delinquent loans with arrears quite 90 days.