![]() ![]() ![]() This all comes because the individuals who make up the first link in that chain can’t pay, often just temporarily. Then the lenders themselves - those that made mortgage loans to households and those that made property acquisition loans to the small landlords - suffer loss. For renters, their landlords are then hurt because of those missed rent payments, and so they in turn go into default on the loans they took out to buy the rental property, something felt especially by the small landlords who have little clout with their lenders. But that is just the start of what is a chain of impairment. When people go delinquent on their mortgage or rent because of COVID-based job loss or income reduction, their lives often become a proverbial hell. Since this assistance has now expired, a new wave of delinquency is before us, and millions more Americans could go delinquent in the months immediately ahead. Many of the resulting evictions that normally would have occurred have been forestalled by government mandate, and a major portion of the mortgage payments and apartment rental payments that would have been late have been staved off by the lifeline of the $1,200 checks from the CARES Act and augmented unemployment benefits. With the loss of income and unemployment support, it is reasonable to believe that number will increase by several million over the next few months. With more than 43 million renters, that means more than 7.4 million are behind on their rental payments. That compares with less than 7 percent in prior years. Census Bureau reports that, as of July, 18 percent were delinquent in their rent payments. ![]() With that, I estimate that at least 1 million to 2 million more of these loans will fall delinquent before the end of this year.Īs for renters, the U.S. Add to that the fact that, per Black Knight mortgage analytics, almost 5 million homes have been in forbearance. With 53 million mortgages in the U.S., that means more than 4.3 million mortgages are delinquent. had reached 8.2 percent, the highest since 2011 and almost double the 4.5 percent of a year earlier. Today's prime portfolio is arguably higher risk, due to higher loan-to-values, and has a greater volume of vulnerable borrowers than did the 2007 prime portfolio, raising the potential for even bigger losses today if a house price decline comparable to 2007 was to occur.Ĭlick here to read Sharathchandra’s forecast in its entirety further deep dives into available data.With COVID-related income supplements and unemployment benefits now expired or reduced, we face a new wave of mortgage and rental delinquencies, many of which will come in the next few months.Īccording to the Mortgage Bankers Association, as of June 30, mortgage delinquency in the U.S. “Rather, the data indicates that the biggest driver of mortgage defaults is falling house prices and the negative equity that results from it and that this, by far, outweighs the contribution of borrower and underwriting characteristics such as FICO scores or subprime status.”ĭata from Fannie Mae and Freddie Mac showed that even the low-risk portion of the prime mortgage portfolio contributed 40% of total credit losses with the overall prime portfolio contributing nearly 70%. “The post-2007 mortgage default data does not support the argument made by a number of economists that, even if house prices were to decline steeply, there is little likelihood of mortgage defaults being anything similar to the post-2007 experience because of stronger underwriting and better borrower financial conditions today,” said Sharathchandra. The national nature of mortgage rates has contributed to a geographically broader increase in house prices and is now likely to make the decline in house prices similarly so. But unlike 2007, when it was high home prices that made homes unaffordable, today it is both home prices and mortgage rates, which have recently eclipsed the 7% mark for the first time in over 20 years. A new white paper by Gopal "Sharath" Sharathchandra, the SVP of Financial Solutions for Ventera, entitled “ How High Will Mortgage Defaults Go? Lessons from the 2007 Recession ” forecasts the impact of the recent decline in home prices and the effects it might have on the mortgage market.Īccording to Sharathchandra, price declines are likely to mirror those seen in 2007, but across a larger cross-section of the country. ![]()
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