On March 30, FHA released its Quarterly Report to Congress on FHA Single-Family Mutual Mortgage Insurance Fund Programs for Q4 2020. The report shows that the MMI fund grew to $82.3 billion from $79.9 billion the prior quarter. However, the year-to-date actual net loss rate on claim activity of 35.2% is higher than the projection of 30.1% percent, as the portfolio-level serious delinquency rate increased in the quarter to 11.9%, from 11.6% percent last quarter. Consequently, Secretary Fudge in a statement indicated stated that “Given the current FHA delinquency crisis and our duty to manage risks and the overall health of the fund, we have no near-term plans to change FHA’s mortgage insurance premium pricing.”
As we have noted previously, the Covid-19 crisis is very distinct from the Global Financial Crisis (GFC) insofar as while both periods experienced high delinquency rates, house prices now are soaring as opposed to collapsing in the earlier crisis.
We have commented previously about housing and the “K-shaped Recovery” in which home prices are booming but rent increases are decelerating. This dichotomy is highly unusual but reflects the flight of households out of dense urban environments due to the Covid-19 pandemic. With rents decelerating, it is not surprising that starts of new multifamily units have been in a trend decline over the past year.
In a recent post, we discussed the application of the FHA Neighborhood Watch dataset to understanding the market landscape for this program. Peering a bit deeper, more insights can be obtained. We just updated this dataset through December so it is an opportune time to take a look at FHA loan performance.
First, the share of FHA loans in pools continued to decline at the end of the year:
The loans in pools fell by about 60,000 in December while the total fell by 40,000 implying that perhaps 20,000 loans were purchased out of pools, and presumably modified as foreclosures are currently forbidden. Interestingly, the number of loans in pools new issuance with mods rose for the first time since July:
It shows even though most of the loans are expected to be cured by partial claims, modification remains a tool to work out delinquent loans. We will have separate pieces focusing on partial claims in future posts.
Now what about delinquencies? What is the delinquency rate of loans in the FHA program?
As servicers may buy serious delinquent loans out of pools, and banks tend to hold conventional loans not FHA loans on their balance sheet, the overall FHA delinquency rate reported by FHA Neighborhood Watch data is generally higher than that for loans in pools. When COVID-19 first struck last spring, the 30-day delinquency rate spiked, narrowing the gap with the total figure, but many of these cured as labor markets recovered. More recently, lenders have picked up the pace of purchasing delinquent loans out of pools, as they have the financial incentive to modify the loans to allow the borrowers to become current and then resecuritize them. A key question for 2021 is when forbearance programs expire, how many borrowers will be able to work with lenders to keep their homes, and how many will lose them? Stay tuned.
 “In pools” means the loans were securitized by Ginnie Mae issuers
 The delinquency rates are calculated using the delinquent loan counts divided by total loan counts
We’ve written previously that the multifamily market will be of growing interest during the course of 2021. During the Global Financial Crisis, the single-family market was ravaged by foreclosures resulting from the popping of the housing bubble. The large number of households losing their homes became renters to a large degree. This time is different. Renters are fleeing congested urban areas and are buying homes in areas with more space, serving to push up house prices while rents are under downward pressure. According to the Elliman Report, the rental vacancy rate for Manhattan in November 2020 was 6.1%, compared to 1.8% a year earlier. This figure will of course vary considerably from place to place. The potential for more vacancies remains once the various Federal and Local Covid-19 bans on evictions are allowed to expire. According to Trepp, the national 30+ day delinquency rate for multifamily loans in December 2020 was 2.75%, up modestly from 2.00% a year earlier.
The role of the Agencies in the multifamily debt market is significant, but less than the overwhelming presence seen in the single-family market. Data disclosed by the agencies provides a wealth of information about the rental market but did not receive widespread attention until recently. In this post, we discuss trends in multifamily loan maturity schedule and prepayment penalty schedule. This data is of interest because unlike the single-family market, there are fewer apartment loans, but they are generally quite large. Maturities can clump, leading to periods of time when capital demands can push borrowing costs higher. On the other hand, opportunities for lenders arise when loans mature or exit the prepayment penalty window.
So once again we look at the theme of 2021 as a transition year. A lot of the year will be spent peering at the data to tease out emerging trends as we head towards the new normal.
The discernment of new trends requires the use of new data, and new tools. We have recently brought into the Recursion data set FHA Neighborhood Watch data, which was discussed previously in the context of partial claims. These are the suspended mortgage payments for loans in forbearance that are rolled into a second lien, repaid only when the loan is extinguished. This is particularly useful for tracking the financial burden of forbearance by servicer. To accomplish this in a comprehensive manner, FHA releases this data for all endorsed loans. Using this data, we can examine trends in all loans vs those securitized in Ginnie Mae pools. Our data for the FHA Neighborhood Watch extends back only to April 2020, but the last eight months have been an interesting period in mortgage markets.
In prior posts, we have pointed out the tight relationship between unemployment and mortgage delinquency. This note extends this analysis by looking at this relationship at particular durations.
Every month, the Bureau of Labor Statistics releases data on the “Duration of Unemployment”. For example, below find a table containing data for the number of unemployed people in before, during and after the shock associated with the onset of the Covid-19 crisis by how long they have been unemployed.
As we head into 2021, an ongoing issue is the disposition of loans in forbearance. The Cares Act allows for borrowers negatively impacted by the Covid-19 pandemic to obtain forbearance up to 1 year. This will begin to expire in Spring 2021, although an extension is possible as the new Administration takes over in January. A key point is that forbearance is not forgiveness. The mortgage agencies have provided options for borrowers who become current after forbearance, so they don’t have to make a lump-sum payment for missed principle and interest.
FHA has designated its policy regarding the disposition of suspended payment amounts as COVID-19 National Emergency Standalone Partial Claims(COVID Partial Claim).
“The COVID Partial Claim puts all suspended mortgage payment amounts owed into a junior lien, which is only repaid when the homeowner sells the home, refinances the mortgage, or the mortgage is otherwise extinguished.”
In a recent post we compared the average credit score at origination history from NSMO with that from the agency loan-level datasets on an apples-to-apples basis.
In today’s blog, we improved the matching by using the Analysis Weights that are provided in the NSMO dataset to compute the averages. NSMO Analysis Weights are the product of the sampling weight and a non-response adjustment, which can make the NSMO dataset more representative.