Mortgage Delinquencies Rise as Unemployment Rate Increases

A sign advertising refinancing services is posted in a vacant lot in Stockton, Calif., on April 29, 2008. Justin Sullivan/Getty Images

The rate of mortgage delinquencies increased in the second quarter of this year, with loans at default for 60 days or less accounting for the annual surge, according to the Mortgage Bankers Association (MBA).

Delinquency rates for 1- to 4-unit residential properties rose to 3.97 percent of all outstanding mortgages by the end of the second quarter, said an Aug. 15 press release. The rate of delinquency was up three basis points from the first quarter and 60 points from second quarter 2023. “While delinquencies are still low by historical standards, the recent increase corresponds with a rising unemployment rate, which has historically been closely correlated with mortgage performance,” said Marina Walsh, CMB, MBA’s vice president of industry analysis.

The rate of unemployment has been rising since last year, moving up from 3.4 percent in January 2023 to 4.3 percent in July 2024. Mortgage delinquency rates have followed this trend.

The state with the largest quarterly increase in delinquency rates was Mississippi, followed by Louisiana, Indiana, Ohio, and West Virginia.

Walsh points out that the composition of mortgage delinquencies has “evolved” based on the stage of delinquency. Mortgages in the early stage of delinquency—unpaid for 60 days or less—made up the entire 60-point overall delinquency increase from the previous year, she said.

“Meanwhile, seriously delinquent loans—those loans 90 days or more delinquent or in foreclosure—fell to their lowest levels since 1984 as servicers are helping at-risk homeowners avoid foreclosures through loan workout options that can mitigate temporary distress.”

Freddie Mac points out that overall loan delinquencies, including mortgages and other debts, dipped near “historic lows” during the pandemic in an environment of low interest rates and fiscal stimulus.

As interest rates began to rise and excess savings from the pandemic depleted, the rate of delinquencies also started to go up. When financial conditions tightened, delinquency rates exceeded their pre-pandemic averages.

While mortgage delinquencies have risen in recent times, it has remained below the pre-pandemic level, a far cry from credit card and auto delinquency rates that have gone beyond the pre-pandemic levels.

“Part of the reason mortgages have performed better than auto and credit cards is because 92 percent of U.S. household mortgages have fixed rates, while most auto and credit card debt is variable rate,” it said.

“Thus, while interest rate on new mortgages increased, the average rate on all outstanding mortgage debt increased much less.”

‘Gradual Increase’ in Foreclosures

In a July survey from real estate marketplace Auction.com, default servicing experts said they expect “a gradual increase in foreclosure volumes in the second half of the year.”

Respondents pointed to rising “hidden” housing costs like homeowners insurance and property taxes as the biggest potential risks that could push up mortgage delinquency rates.

Daren Blomquist, the vice president of market economics at Auction.com, said that although the risk of delinquencies rising rapidly in the near term is low, there are signs suggesting that homeowners are under stress.

Meanwhile, completed foreclosure volumes so far this year have remained at half the 2019 levels, mostly due to “more robust loss mitigation options coming out of the pandemic,” said Joe Cutrona, chief business officer of Auction.com.

Foreclosure activity in the first half of the year is already down compared to the previous year. There were 177,431 U.S. properties with foreclosure filings in the first six months, according to real estate data curator ATTOM. This was 4.4 percent lower compared to a year ago.

Foreclosure activity so far this year is the fourth lowest since 2008. In addition, “U.S. foreclosure starts also decreased by 3 percent in the first six months of 2024. These shifts could suggest a potential stabilization in the housing market,” said Rob Barber, CEO of ATTOM.

States that saw the highest increase in foreclosure activity in the first half of 2024 compared to a year back were South Dakota, followed by North Dakota, Kentucky, Massachusetts, and Idaho.

States with the highest foreclosure rates during this period were New Jersey, followed by Illinois, Florida, Nevada, and South Carolina.