Foreclosures and Unemployment and Debt Oh My!
Mortgage default rates continue to remain at record lows but have increased at the close of 2023. Mortgage Orb reports the rate increased to 3.1% in December, a slight uptick from previous months. For several reasons, however, these low rates may belie a potential surge in mortgage delinquency throughout 2024.
Foreclosures
Foreclosures have increased exponentially since the pandemic, according to The Mortgage Note. The number of mortgage foreclosures reported was 357,062, up 136% since 2021. A primary reason is the high interest rates compared to the low Covid-19 rates. Donna Schmidt was quoted in this news release, saying that many homeowners may be struggling with their finances as they exit forbearances.
Unemployment
Unemployment, like foreclosure rates, have also been comparatively low, ending 2023 at 3.7%. This too is expected to rise throughout the year. Last Winter, MBA announced they expected the rates to increase to as much as 5% by the end of 2024. Other forecasts since then are more modest and believe we could see rates climb a little over 4%.
Household Debt
Household debt is the big elephant in the room. It is difficult to see right now the potential impact that high consumer debt may have on mortgage defaults as the year unfolds. Credit card delinquencies increased more than 50% in 2023 to over $17.5 trillion CNBC reported. Auto loan delinquencies are also on the rise. Loans transitioning into default status have passed pre-pandemic levels. The Federal Reserve Bank of New York reported that car loans taken out over the past couple years are performing worse due to the rising costs of vehicles.
The recent resumption of student loan payments could further threaten household financial security. The purpose of the governmental student loan forbearances was to lower monthly bills of the 43 million borrowers and help them keep their credit score up. This wasn’t entirely successful, as the Economist reported a while back: “By the end of 2022, beneficiaries of the moratorium accumulated an additional $2,500 in student-loan debt and an additional $2,000 in credit-card, mortgage and car-loan debt, boosting total household indebtedness by 8%.”
Delinquency Outlook
Many mortgage servicers may be treading unsettling waters that could quickly become turbulent. Then there’s the many upcoming new home retention regulations instituted by insurers like FHA that demand system and personal updates (Click here for our content on the FHA PSA). This may all collude to bring a busy year for the loss mitigation side of loan servicing.
