Federal Housing Administration mortgage delinquencies hit an all-time, four-decade high, according to data released on Monday, a sign that disadvantaged homebuyers are clearly struggling in the pandemic-impacted economy.
The share of FHA mortgage delinquencies rose to almost 16% in the second quarter, the highest level since 1979, as reported by the Mortgage Bankers Association. The delinquency rate for conventional loans, by comparison, sits at 6.7%. The Federal Housing Administration focuses on an affordable path to home ownership; FHA mortgage holders tend to be first-time homebuyers, minorities and low-income Americans. FHA mortgages allow for smaller down payments and less conservative underwriting in terms of credit health.
The deterioration in the ability of homeowners to make payments has been as swift as the destruction of the jobs market. The duration of unemployment is a cause for concern on further drag on any expected recovery, as a robust rebound is dependent on the economy not suffering structural damage. The Federal Reserve defines long-term unemployment as being without a job for more than 26 weeks, another milestone some unemployed Americans are fast approaching.
While housing overall has held up and even exceeded expectations based on accommodative government policy, the market’s continued success is contingent on Washington acting on another stimulus package. Those states hardest hit with unemployment and with a high proportion of their economies focused on the leisure and hospitality sectors are, not surprisingly, topping the list of those suffering the highest FHA delinquency rates: New Jersey leads at 20%, ahead of Nevada, New York, Florida and Hawaii.
On the upside, there are a couple silver linings: those with FHA mortgages who can show pandemic-related hardships can delay payments for as long as a year without penalty and are protected from foreclosure by the federal forbearance program. Some 7.3% of borrowers are now in some stage of delinquency, including those in the federal forbearance program – roughly double last year’s 3.6%, according to Corelogic data. The measure for “seriously delinquent” rose slightly to 1.5%, meaning most borrowers are not in the 90+ days late range just yet. Without additional governmental support, economists agree that rate will rise rapidly. But this recession is different than the Great Recession – lenders have been more disciplined this cycle and the demand for homes is outpacing supply as evidenced by the still-hot housing market.