Economics, U.S. Economy

Mortgage delinquencies: Are we back to normal yet?

Image Credit: Shutterstock

Image Credit: Shutterstock

In the housing shrivel inevitably following the great 21st century housing bubble, mortgage loans delinquent over 90 days shot up to their dizzying peak in the first quarter of 2010.  More than four years have gone by since then; the housing and mortgage markets have recovered. But delinquencies are not back to normal yet.

For all mortgage loans, the rate of 90+ day delinquencies has fallen by more than half, from 5.02% at the peak to 2.41% in the first quarter of 2014. That is definitely progress, but has taken us back only as far as the level of 2008. The striking path of 90-day delinquencies for all mortgages from 2002 to 2014– first flat for several years, then rocketing up, then partway down– is shown in Graph 1. The current rate is still 2.7 times as high as the average delinquency rate in the good old days of 2002, which was 0.89%.

Source: Mortgage Bankers Association, National Delinquency Surveys

Source: Mortgage Bankers Association, National Delinquency Surveys

The next two graphs dis-aggregate the history. Graph 2 shows prime vs. sub-prime mortgage loan 90-day delinquencies. From their acrophobia-inducing peak of 15%, the sub-prime 90+ day delinquency rate has fallen by 40%, to just under 9%, bringing it back to the level of late 2008. It is still more than 3.3 times the rate of 2002. Prime loan 90-day delinquencies are down to only 1.3% — but that is 4.5 times where they were in the good old days.

Source: Mortgage Bankers Association, National Delinquency Surveys

Source: Mortgage Bankers Association, National Delinquency Surveys

Graph 3 is a highly interesting comparison of two government mortgage programs: FHA (Federal Housing Administration) vs. VA (Veterans Administration) loans. The startlingly better credit performance of VA compared to FHA is obvious. This instructive difference has been insightfully explored by my AEI colleague, Ed Pinto. In both cases, once again, 90+ day delinquencies have fallen significantly from their peaks; for the FHA, back to 2008 and 1.6 times the 2002 level; the VA is the one category of loans with a 90+ day delinquency rate that is close to of pre-crisis days.

Source: Mortgage Bankers Association, National Delinquency Surveys

Source: Mortgage Bankers Association, National Delinquency Surveys

So: are we there yet?  Nope. The deleterious effects of a giant housing bubble linger a very long time.

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