Delinquencies too Low? Shhhhh.

After the hammering housing took in the Great Housing Depression that began ten years ago, is it even acceptable to whisper about such a thing as an acceptanhle level of default?  S-h-h-h-h-h-h-h. 

How times have changed!  Years of healing from tight-as-a-tick underwriting standards have created an almost squeaky clean default rate in recent mortgage vintages.  Now a CoreLogic economist suggests there’s enough wiggle room in mortgage default rates to loosen things up a bit for first-time home buyers struggling to get financing.

Yet just as she published her thoughts, mortgage delinquencies suddenly spiked upward, sending shivers up and down the spines of lender, regulators and politicians.

In a post in Core Logic’s blog last month, economist Molly Boesel makes that point that default rates have fallen to 2.1 percent if you exclude loans made in the crisis years of 2004 to 2008.

“While it is tempting to blame the terrible performance of the worst vintages on exotic mortgage products, overall loose credit standards, poor economic conditions, and the housing market crash that left borrowers with negative equity are also to blame for poor performance. To demonstrate this more clearly, Figure 4 shows the “plain vanilla” type of mortgage: owner-occupied, fully-documented, 30-year fixed-rate, conventional conforming purchase mortgage with a mid-to-high credit score and moderate loan-to-value ratios2. While the level of SDQ rate shifts a bit lower for the plain vanilla mortgage than for mortgages overall, the impact is minimal, and the 2005 to 2008 vintage years still show outsized SDQ rates. Therefore, while shrinking the credit box had an impact on the mortgage performance of the post-bust originations, overall better economic conditions and improving housing market conditions have also played a role in improved delinquencies.

“While shrinking the credit box had an impact on the mortgage performance of the post-bust originations, overall better economic conditions and improving housing market conditions have also played a role in improved delinquencies,” she argues.

“Do mortgage vintages really need to be as pristine as they have been in the most recent years?” she asks.

Within days of her post, Black Knight reported that the national delinquency rate for loans 30 or more days past due, but not in foreclosure) soared to 6.08% soared to 6 percent in November, the highest since last February.  It was an increase of 11.82% over October and a year over year change of 5.69%.

“While delinquencies have increased in six of the last seven Novembers, there hasn’t been an increase of this magnitude since 2008.  On the other side, the foreclosure inventory continued to decline, reaching its lowest level since January 2008,” wrote HousingWire’s Brena Swanson.