Missed Mortgage Payments Hit 4.3 Million in May
As the number of coronavirus cases ramps up across the nation, another troubling trend has emerged: About 4.3 million Americans either postponed or failed to pay their mortgage notes in May. That number includes both forbearances and missed payments — and brings the overall delinquency rate to 8% for May 2020, according to a recent report by Black Knight, a mortgage data company.
That’s a significant jump — up from 2 million at the end of March — and signals that another 723,000 homeowners became past due on their mortgages in May, which pushed the national delinquency rate to its highest level in 8.5 years. But, while it’s clear that a large number of homeowners are opting to defer payments through forbearance, it’s not terribly surprising that the number increased given the current economic situation.
What is concerning is that the number of serious delinquencies increased significantly from March to May. The number of serious delinquencies has increased by over 50% over those two months, and about 630,000 homeowners are currently 90 days delinquent or more.
What does this mean for the housing market?
Well, such a high rate of serious delinquency would, under normal circumstances, likely signal a potential for a serious issue with foreclosures, but in this case, the numbers may not signal that at all. According to the data from Black Knight, the share of homeowners in active foreclosure has fallen to its lowest level on record since Black Knight began reporting the figure in January 2000, despite the fact that serious delinquencies are increasing rapidly.
Part of the reason we aren’t seeing homes in active foreclosure right now is that a lot of foreclosure starts and sales (completions) have been halted by COVID-19 moratoriums. This has helped foreclosures remain at record lows, but whether that will be the case over the long haul remains to be seen. There could be more economic damage with the new increase in coronavirus cases, but it’s too early to tell.
It’s also not likely that everyone in forbearance will ultimately be able to pay back what they owe on their missed mortgage payments, which could indeed become a major issue when the option for forbearance ends post-COVID. Banks and housing industry experts are keeping a close eye on the delinquency numbers and whether or not the people falling behind are in forbearance or not, but not much is clear yet regarding the future of mortgage delinquencies.
We could see a significant number of foreclosures due to the high numbers of serious delinquencies or we could not. It’s too soon to tell — especially considering that the uptick in coronavirus cases has taken a steep uphill climb over the last couple of weeks. In theory, more safety nets could be put in place for homeowners that could limit the number of foreclosures post-COVID — which is what we saw with the first upward tick in cases — but only time will tell.
For now, what’s important to focus on is that there are options for homeowners who are out of work or financially struggling due to the pandemic. Forbearance may be causing some concerning statistics regarding delinquencies, but it’s also keeping people in their homes during an extremely tumultuous time.
And, there are some potentially good signs emerging from May’s Black Knight report, though we won’t know the full scope of the information until next month’s report. There is a note in the report stating that the Black Knight’s McDash Flash Payment Tracker shows a higher share of payments have been made thus far in June than at the same time in May, suggesting the rise in delinquencies may be leveling off.
Whether that’s true or not remains to be seen, but if it is, it’s good news across the board for homeowners and lenders. Stay up-to-date with current mortgage rates if you’re any of these.