The serious delinquency rate on mortgages (90 or more days delinquent, in foreclosure or real-estate owned) peaked at 8.5 percent in January 2010 and has since declined to 5.4 percent as of July 2013, according to CoreLogic’s Insights blog.
However, the current delinquency rate remains much higher than the normal 1- or 2- percent range experienced in the early 2000s. To better evaluate mortgage performance after underwriting tightened, a vintage year analysis is needed by year of origination and age of loan. The analysis allows one to compare performance under different underwriting regimes while controlling for seasoning effects.
Through the first six months of 2013, the serious delinquency rate of loans originated in 2013 is only six basis points, down from 10 basis points for loans originated last year and down from 108 basis points for loans originated in 2007, the worst performing year in the 2000s.
However, the decline in delinquency results were recorded over the same six months, January to July, that lenders loosened up their underwriting standards more than they have in years, according to Ellie Mae’s July Originations report.
“Credit standards continued to ease in July,” said Jonathan Corr, president and chief operating officer of Ellie Mae at the time. “The average FICO score fell to 737, from 742 in June 2013, and it is now at the lowest level since we began our tracking in August 2011. Similarly we saw slight increases in both loan-to-value and debt-to-income ratios last month-signs that lenders are willing to accept slightly more risk to maintain volume. Dent to income ratios also have risen to the highest level since Elli Mae began tracking mortgage data in February 012. By September, median FICO scores had fallen even farther, to 732. Ellie Mae’s data is compiled from Encompass360 mortgage management software that processes approximately three million loan applications last year, or 20 percent of all U.S. mortgage originations.
“While clearly an improvement from the worst years, 2013 is also shaping up to be the best performing year in a decade. In 2003, when home prices were quickly appreciating, the six-month serious delinquency rate was 15 basis points – more than twice the rate in 2013. In fact, the 2011 and 2012 vintage years combined averaged a 13- basis-point delinquency rate, still better than 2003. This clearly indicates that the most recent mortgage vintages are pristine relative to even the good performing years of the early 2000s. While there has been much consternation about underwriting being too tight in the context of forthcoming mortgage regulations, one underappreciated outcome has been the very good performance of mortgages during the last few years. Tighter credit results in flawless performance,” said CoreLoguc.