Mortgage Defaults Stabilize, FHA New Defaults Drop 15%

New mortgage default activity stabilized in June, with a notable 15% year-over-year decrease in new defaults among Federal Housing Administration (FHA) borrowers. This marks the most significant annual decline for FHA defaults in over four years, according to Intercontinental Exchange's (ICE) latest First Look Mortgage Performance report. The report indicates that overall mortgage performance remained robust during June, despite a seasonal uptick in delinquencies. Andy Walden, head of mortgage and housing market research at ICE, stated that early-stage delinquencies are subdued, and while serious delinquencies, including foreclosures, have reached pre-pandemic levels, the stabilization of new default activity is a positive indicator.

The overall delinquency rate in June was 3.55%, remaining below the pre-pandemic benchmark of 4.16% observed in June 2019. Serious delinquencies, defined as loans 90 or more days past due but not yet in foreclosure, decreased to 570,000, reaching their lowest point in six months. This improvement trend for serious delinquencies began in March. ICE also observed enhancements in early-stage mortgage performance, with fewer borrowers transitioning into 30-day and 60-day delinquency statuses on both a monthly and annual basis.

Despite the positive trends in new and early-stage defaults, the active foreclosure inventory rate rose to 0.53% in June, its highest level in six years. Foreclosure starts also reached a six-year high, and foreclosure sales increased by 16% compared to the previous year. However, these sales remain 46% below pre-pandemic levels. The number of properties that are 30 or more days past due but not in foreclosure increased from the prior month to 1,961,000. Bob Hart, President of ICE Mortgage Technology, attributed the sustained performance partly to elevated homeowner equity.