Spokane Journal of Business

Mortgage delinquency rate has risen

Early summer increase is typical, though more pronounced this year

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The June Mortgage Monitor report released earlier this month by Jacksonville, Fla.-based Lender Processing Services found a nearly 10 percent spike in the national delinquency rate in a month-to-month comparison.

The company's mortgage performance report showed about 700,000 newly 30-day delinquent loans in June. Overall, the U.S. loan delinquency rate was 6.7 percent that month.

However, LPS Applied Analytics Senior Vice President Herb Blecher says the spike—while large—should be seen in the proper context.

"June's increase in delinquencies is representative of a documented seasonal phenomenon," Blecher says. "Over the last 18 years, similar changes occurred in June for all but four of those years. And this month's increase was felt across all 50 states—from a roughly 14 percent month-over-month rise in 30-day delinquencies in Nevada to a nearly 32 percent upswing in Colorado."

States with the highest noncurrent loan rates were Florida, Mississippi, New Jersey, New York, and Maine. The lowest such rates were found in Montana, Wyoming, Alaska, South Dakota, and North Dakota.

The company examined the data to see the effect of recent increases in interest rates on delinquency rates and found no significant impact thus far. Adjustable-rate mortgages, which one would expect to be impacted most by such interest rate changes, actually saw delinquency rates rise at a lower relative rate than those of fixed-rate mortgages.

"Of course, focusing solely on month-to-month shifts in mortgage performance can be like tracking the stock market on a daily basis," Blecher says. "You may see periodic spikes and dips, but without a longer-term perspective, you lack a clear picture of how the market is actually performing."

June's 9.9 percent spike was significant—and a reversal of five consecutive months of declines—on a quarterly basis and higher than the historical average. Since 1995, delinquency rates have risen from the first quarter to the second quarter in all but two years, with an average 7 percent increase. By comparison, the 2013 increase in the second quarter, compared with the first, was just 1.3 percent, Blecher says.

Looking further into the impact of mortgage interest rate changes, LPS re-examined the pool of potential refinanceable mortgages and found that, despite improved equity situations nationwide, fewer loans have refinanceable characteristics at the new rates, as many loans currently have a lower interest rate.

Approximately 12 percent of active loans, about 5.9 million, fit broad-based refinanceable criteria, down from 8.9 million in March of 2013 when rates were at historic lows. Still, while prepayment rates—historically a good indicator of refinance activity—had declined 12 percent in June in the face of rising interest rates, they were higher than when interest rates were last at this point back in 2011.

LPS manages a repository of loan-level residential mortgage data and performance information on nearly 40 million loans across the spectrum of credit products. The company's research experts analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for LPS' monthly Mortgage Monitor Report.

A Fortune 1000 company, LPS employs about 7,500 people.

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