Real Estate News

Mortgage risk dropping in recent months

Published: 11 Sep 2017

Mortgage risk was perhaps one of the biggest concerns in the housing market as a whole over the past several years, and many lenders may still be cautious about the issue even now, years after the recession came to an end. However, while problems with home loans - both before and after they've been signed - persist, they're at some of the lowest levels seen in quite some time.

For instance, the number of mortgages nationwide that have some sort of pre-existing defect - such as errors, fraud or misrepresentation - remained flat on a monthly basis but dropped about 20 percent year over year in July, turning around a trend of seven straight months with upticks in risk, according to the latest First American Loan Application Defect Index. However, despite all the recent increases, today's level of defect risk is still nearly 18 percent lower than the all-time high in the market, observed in October 2013.

Mark Fleming, the chief economist at First American, cautioned that even a flattening-out of such risk is a positive but doesn't necessarily signal the start of a trend.

Mortgage risk continues to decline as the economy improves.Mortgage risk continues to decline as the economy improves.

Other good news
However, it's worth noting that other aspects of the mortgage market, specifically related to delinquencies, are also improving nationwide, according to the latest National Delinquency Survey from the Mortgage Bankers Association. Indeed, the share of home loans that were even behind by a single payment in the second quarter of 2017 - the most recent period for which data is available - slipped to 4.24 percent, down significantly on both a quarterly and annual basis.

Likewise, mortgage payments that were at least 90 days behind, including those for homes in foreclosure, made up just 2.49 percent of all properties nationwide, and that too was a decline from both the previous quarter and the same period a year earlier.

"In the second quarter of 2017, the overall delinquency rate was at its lowest level since the second quarter of 2000," said Marina Walsh, MBA vice president of industry analysis. "The foreclosure inventory rate was at its lowest level since the first quarter of 2007. In addition, the seriously delinquent rate, which combines loans that are 90 days or more past due with those loans in the process of foreclosure, dropped to a ten-year low."

Foreclosures reach recent low
Early- and late-stage delinquency often portends future changes in foreclosure activity, and in July, the total number of foreclosed homes seen nationwide slipped to 398,000, marking the first time the inventory was below 400,000 in a decade, according to the latest data from Black Knight Financial Services. That number was down 28 percent over the previous 12 months, though it should be noted that early-stage delinquencies increased slightly on a seasonal basis in July.

With mortgage risk of all kinds seemingly on the decline, the market may be improving considerably for lenders and borrowers alike. And as long as the economy continues to improve - and more people find employment - that's a trend that could continue for some time to come.