FHA Mortgage Delinquency Rates: Understanding the Performance and Risk Factors

FHA mortgage delinquency rates are a crucial indicator of the performance and risk associated with FHA-insured mortgages. According to the data, the overall delinquency rate for FHA mortgages is around 5.4%.

Delinquency rates vary by loan-to-value ratio, with higher LTV ratios experiencing higher delinquency rates. For example, FHA mortgages with an LTV ratio of 90% or higher have a delinquency rate of around 7.3%.

The average credit score of borrowers who default on FHA mortgages is around 650. This suggests that borrowers with lower credit scores are more likely to experience delinquency issues.

FHA mortgage delinquency rates are influenced by various risk factors, including loan-to-value ratio, credit score, and debt-to-income ratio.

A different take: Mortgage Demand Falls amid Higher Interest Rates

FHA mortgage delinquency rates can be attributed to several key factors. A significant contributor is a borrower's debt-to-income ratio, which can be as high as 43% for FHA loans, making it challenging to manage payments.

High housing costs, including property taxes and insurance, can also lead to delinquency. In areas with rapidly increasing property values, homeowners may find themselves struggling to keep up with mortgage payments.

Additionally, unemployment and income instability can cause borrowers to fall behind on their mortgage payments.

Discover more: Us Mortgage Rates Have Climbed to a Four-month High

Mortgage delinquencies are on the rise, and one of the key factors driving this trend is unemployment. According to Marina Walsh, the MBA's vice president of industry analysis, there's a strong correlation between unemployment rates and home loan defaults.

The current unemployment rate is expected to increase to 4.7% next year, which is a significant concern for the mortgage industry. This upward trend in mortgage delinquencies is the primary cause for concern, not the current level.

The national delinquency rate has increased to 3.48% in September, up from 3.29% a year earlier. This is a 19 basis-point increase, and it's a sign that more homeowners are struggling to make their mortgage payments.

The 30-day delinquency rate for one- to four-unit residential loans has also increased, reaching 3.92% in Q3 2024. This is up from 3.62% in Q3 2023 and 3.37% in Q2 2023, which was the lowest level since 1979.

A fresh viewpoint: 3 Year Arm Mortgage Rates

The 60-day delinquency rate has increased by 27 basis-points, reaching 1.22% in Q3 2024. This is a sign that more homeowners are falling behind on their mortgage payments, and it's a concern for the mortgage industry.

As unemployment rates rise, more homeowners will struggle to make their mortgage payments, leading to an increase in delinquencies. This is a concerning trend that the mortgage industry needs to address.

New delinquencies are a concern, and researchers have identified some key factors contributing to this trend. The Mortgage Bankers Association's Marina Walsh notes that college debt obligations have restarted after a pandemic-related respite, weighing on some borrowers.

Increased borrowing on credit cards and other forms of consumer debt is also a factor, as bank-account balances have declined. Strong employment has helped limit distress for most types of mortgages, but some borrowers are still struggling.

The MBA's data shows that the delinquency rate for FHA loans increased by 165 basis points from last year, with the rate rising to 10.60%. This is a significant increase, and it's worth noting that FHA loans tend to perform more poorly than other mortgages due to their borrowers having lower incomes and being more susceptible to financial stress.

The five states with the largest quarterly increases in their overall delinquency rate are:

These states are experiencing a significant increase in delinquencies, which could have broader implications for the mortgage market.

FHA delinquency rates have been higher than those of conventional or VA loans, reflecting their higher credit risk. This is evident from the 30+ delinquency rates for different segments of the mortgage market over time, as shown in Fig. 10.

The recent rise in the FHA delinquency rate is mainly driven by an increase in 30-day and 60-day delinquencies, which have exceeded pre-pandemic levels. The seriously delinquent rate for FHA loans (i.e. 90-day +) is still declining from the pandemic peak, but remains significantly higher than pre-pandemic levels.

FHA loans typically perform more poorly than other mortgages because their borrowers have lower incomes and are more susceptible to financial stress. The average delinquency rate for Federal Housing Administration-insured mortgages jumped 131 basis points from the previous quarter to 10.81%, marking a high not seen since the third quarter of 2021.

The increase in the FHA sector was more than five times the 26 basis-point uptick to 3.88% for home loans overall. This is a significant concern, as increases in FHA delinquencies can foreshadow stress on the broader mortgage market.

Geographically, the five states with the biggest increases in delinquency rates during the quarter were Louisiana, West Virginia, Illinois, Texas, and New Mexico.

Suggestion: Mortgage Rates Housing Market

The latest survey from MBA's Q2 2024 National Delinquency Survey reveals some interesting facts about FHA mortgage delinquency rates.

The FHA delinquency rate increased 21 basis points to 10.60% over the previous quarter. This is a significant jump compared to the 2 basis point increase for conventional loans.

FHA delinquency rates have been on the rise, increasing by 165 basis points from the previous year. This is a stark contrast to the decrease in seriously delinquent rates for FHA loans, which dropped 54 basis points from last year.

The top five states with the largest quarterly increases in their overall delinquency rate include Mississippi, Louisiana, Indiana, Ohio, and West Virginia, with Mississippi leading the pack with a 58 basis point increase.

Here's a breakdown of the top five states with the largest quarterly increases in their overall delinquency rate:

These states saw significant increases in their overall delinquency rates, with Mississippi experiencing the largest jump.

The implications of FHA mortgage delinquency rates are concerning. A large financial shock, such as job loss, can trigger a mortgage default, especially if it's followed by an extended period of unemployment.

FHA borrowers who enter D90+ status due to job loss face a more difficult situation due to the magnitude of the financial shock. If unemployment persists and they have negative equity due to falling prices, default is more likely.

The fact that a greater number of FHA borrowers entering serious delinquency attribute their status to unemployment is a red flag. Unemployment for an extended period is usually a bigger hole to climb out of from the perspective of default.

FHA borrowers have worse credit quality, lower income, and higher LTVs than conventional borrowers. This makes their performance a harbinger of what GSEs and other financial institutions could expect from conventional borrowers.

For another approach, see: Mortgage Delinquency Rates 2024