Readers may recall last week ZeroHedge outlined the dam of pent up mortgage delinquencies continued to crack, with the share of delinquent Federal Housing Administration’s loans hitting a record high in the second quarter.
With millions of Americans out of work due to the virus-induced recession, their personal income has become overly reliant on Trump stimulus checks, as we’ve outlined, a quarter of all personal income now comes from the government.
A fiscal cliff hit the economy on August 01, when the program to distribute stimulus checks to tens of millions of broke Americans ran out of funds. Even though President Trump signed an executive order to fund additional rounds of checks, only one state, as of August 21, has paid out new jobless benefits and paused evictions as stimulus talks in Washington have failed to materialize into a deal.
The number of homes with mortgage payments past due by 90 days or more rose by 376,000 in July to a total of 2.25 million. Serious mortgage delinquencies have jumped by 1.8 million since July 2019, a decade high, not seen since the last financial crisis.
Black Knight’s July 2020 Month-End Mortgage Performance Statistics:
Black Knight said, “foreclosure activity continues to remain muted due to widespread moratoriums; though starts rose for the month, overall activity remains near record lows.”
Cracks in the dam of pent up mortgage delinquencies are becoming larger as the presidential election nears. Still, millions of folks are unable to service mortgages, remain protected from foreclosure by the federal forbearance program, in which borrowers with pandemic-related hardships can delay payments for as much as a year without penalty. What happens when the program finally ends, and all the payments that were deferred come due could result in housing market weakness.
The prospect of a tidal wave of foreclosures could be ahead as the mortgage industry and government’s policies were merely short-term measures to push a housing crisis off until after the election.
If homeowners still can’t find jobs as the labor market recovery falters, then their ability to service future mortgage becomes impossible. At the same time, deep economic scarring is being realized, resulting in the shape of the economic recovery transforming from a “V” to a “Nike Swoosh.”
Even with part of the housing market booming, that is primarily due to folks ditching metro areas for suburbia and ultra-low mortgage rates pulling demand forward in such a massive way that today’s boom will lead to much lower activity in the future.
Think about it, millions of folks still can’t pay their mortgage, and many of them still can’t find jobs. But, of course, none of that matters as President Trump distracts the sheep and points to how well the Nasdaq is doing.
Freddie Mac reported that the Single-Family serious delinquency rate in June was 2.48%, up from 0.81% in May. Freddie’s rate is up from 0.63% in June 2019.
This is the highest serious delinquency rate since October 2013.
Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.
These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.
With COVID-19, this rate will increase significantly again in July (it takes time since these are mortgages three months or more past due).
Mortgages in forbearance are being counted as delinquent in this monthly report, but they will not be reported to the credit bureaus.
This is very different from the increase in delinquencies following the housing bubble. Lending standards have been fairly solid over the last decade, and most of these homeowners have equity in their homes – and they will be able to restructure their loans once they are employed.
Note: Fannie Mae will report for June soon.