Second Quarter Loan Performance Shows Steady Improvement

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Loan performance continued to improve in
the second quarter. The overall delinquency
on one-to-four-unit residential properties fell to a seasonally adjusted
rate of 4.36 percent
of all loans outstanding at the end of that period, a 27-basis
point (bp) decline from the first quarter of this year.  The National Delinquency Survey conducted
by the Mortgage Bankers Association (MBA) found delinquencies in all stages were lower than during the first
quarter; the 30-day delinquency rate dropped 2 bps while the 60-day and 90-delinquency
buckets dropped by 8 and 18 bps respectively. 
The overall rate, however was up 12 bps from the second quarter of 2017.

The delinquency rate includes
loans that are at least one payment past due but does not include loans in the
process of foreclosure.
  The share of those loans at the end of the second
quarter was 1.05 percent, down 11 bps from the first quarter of 2018 and 24 bps
lower than one year ago. This was the lowest foreclosure inventory rate since
the third quarter of 2006. Foreclosure starts were also lower, dropping by 4 bps
quarter-over-quarter to 0.24 percent, the lowest level since the second quarter
of 1987. 

“We continue to see improvement in the overall mortgage delinquency rate as the
impact of the hurricanes from one year ago lessens, particularly for
conventional loans,” according to Marina Walsh, Vice President of Industry
Analysis at MBA. “Among the various loan types, the delinquency rate for
conventional loans was two basis points lower than one year ago, prior to the
hurricanes.  While delinquencies for both FHA and VA loans were up from
one year ago, they were improved over the previous quarter.”

“The economic outlook continues to support good loan performance.  Gross
domestic product grew at a 4.1 percent rate, the unemployment rate was at an
18-year low, and job growth is averaging over 210,000 jobs per month, so far
this year. This means the economy is close to full employment.” 

“But even with positive economic news, we continue to monitor factors that may
contribute to a rise in delinquencies in future quarters.  Like past
natural disasters, the wildfires in California may have a negative impact.
Other factors include the aging of servicing portfolios as mortgage refinances
slow, and the changing credit quality among certain loan types.”

Performance improved for
all loan types.
The delinquency rate for conventional loans decreased 33 bps to
3.45 percent; the FHA rate declined 32 bps to 8.70 percent and VA delinquencies
were down 35 bps to 3.97 percent over the previous quarter.  Year-over-year changes were more mixed; conventional
loan delinquencies dropped by 2 bps, but the FHA and VA delinquency rates rose 76
bps and 25 bps respectively.

Both Texas and Florida
continue to recover from the September 2017 hurricanes.  The
non-seasonally-adjusted overall mortgage delinquency rate in Texas dropped by
26 bps to 5.36 percent in the second quarter. Prior to the hurricane one year
ago, the overall delinquency rate for Texas was 5.05 percent. In Florida, the
non-seasonally-adjusted overall mortgage delinquency rate on all loans dropped
139 bps to 5.20 percent in the second quarter.  The pre-storm rate in the
state was 4.07 percent. These numbers do not reflect any storm-related forbearance
that might be in place. The survey asks servicers to report these loans as
delinquent if the payment was not made based on the original terms of the

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