Mortgage delinquency decline reflects ‘continued resiliency’ of borrowers

Delinquencies improved in January, highlighting the resiliency of U.S. mortgage holders.

The national delinquency rate fell to 3.38% in January, down from 3.57% in December, according to the Intercontinental Exchange (ICE) First Look Mortgage Performance report. The rate remained flat on a year-over-year basis and was the lowest recorded since October. 

The rebound was anticipated after the December calendar-driven surge in delinquencies. Because December ended on a Sunday, payments made on the last day of the month were credited to January. As a result, some loans appeared temporarily delinquent.

“While some households are facing pressure, January’s improved delinquency rate highlights the continued resiliency of the American mortgage holder, particularly those who were able to lock in record low interest rates in recent years,” Andy Walden, ICE vice president of enterprise research and strategy, said in a statement. 

“The improvement in serious delinquencies, along with the fact that the majority of such loans remain in forbearance or other loss mitigation programs, suggests that near-term foreclosure and default risk continues to remain historically low.” 

In January, serious delinquencies (loans 90 or more days past due) were down month over month, subtracting 5,000 borrowers in that category and affecting 470,000 loans in total. On a yearly basis, the rate of serious delinquencies was 19% below the January 2023 rate of 579,000 borrowers.

Meanwhile, early-stage delinquencies (30 to 60 days past due) decreased month over month but increased year over year. In January, roughly 1.8 million loans were at least 30 days overdue. 

On the other hand, foreclosure starts marked a 43.3% month-over-month jump to 34,000, driven in part by seasonal pressures. It was the highest rate recorded since April 2022. Meanwhile, the active foreclosure inventory rose to 219,000, adding 7,000 since December. 

Likewise, the 6,600 completed foreclosure sales in January were up 23% compared to December.

Prepayment activity rose marginally on the back of softer mortgage rates in December and January. The decline  in mortgage rates spurred an uptick in purchase and refinance demand.

“Prepay activity in this market has been, and continues to be, driven primarily by the purchase market,” Walden said. “With home purchases typically hitting seasonal lows in January and February, prepayment activity will likely hold relatively low. 

“That said, rates are forecasted to gradually improve throughout the year, and we could see prepayments rise as spring home sales pick up and the incentive to refinance gradually returns, especially among borrowers who got their mortgages in 2023 and who will regain incentive more quickly.”

The five states with the worst mortgage performance were Mississippi, Louisiana, Alabama, Oklahoma and West Virginia. At the other end of the spectrum, California, Montana, Washington, Idaho and Colorado were the states that showed the best performance.

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