FHA Mortgage Delinquencies at Record 17.4%

The Federal Housing Administration (FHA) insures about 8 million high-risk mortgages with “low down payments,” “low closing costs,” and “easy credit qualifying.”   FHA insures mortgages -- the  U.S. taxpayers carry the risk.

For August 2020, FHA reported an all-time record 17.4% of its mortgages were delinquent, up from the previous all-time record 17.0% in July 2020, and double a year ago. FHA delinquent mortgages do not include any of the other delinquent mortgages.

Over the past two years, about two-thirds of FHA mortgages had credit scores at origination of 679 or below. Many FHA borrowers are the low credit rating people hit hardest by the high unemployment rate since March 2020.

“Seriously delinquent” (90 days+) mortgages rose to an all-time record of 11.2% in August 2020, up from 10.9% in June 2020, and way up from 3.8% in August 2019. The delinquency rate for the top 169 metros (about 6 million of FHA-insured mortgages) rose to 18.0%, and their seriously delinquent mortgages rose to 11.7%. Delinquency rates are between 20% and 27.7% in 29 metro areas.

Delinquency rates include mortgages that were delinquent and were then moved into forbearance programs, where the lender agrees to not foreclose due to nonpayment, and the borrower doesn’t have to make payments for a set period. Better known as “extend and pretend.”

Forbearance is six months, under the 2020 CARES Act, extendable by another six months.  Missed payments and unpaid interest are added to the mortgage principal balance.

Home prices have increased, so most of these borrowers are not "underwater". The delinquencies are because people lost their jobs, or lost paid hours of work,  and can't make their mortgage payments for economic reasons. Forbearance will eventually end, and borrowers will have to make payments again, or sell the home and pay off the mortgage, or find themselves in a foreclosure.

The highest delinquency rates among FHA-insured mortgages occur in Nassau County-Suffolk County, NY (27.7%); and New York-New Jersey City-White Plains, NY-NJ (27.0%) -- and over 20% of the FHA mortgages in both of those areas are “seriously delinquent.”  The most at-risk metros are those where FHA-insured mortgages have a high market share, and a high delinquency rate too.

The table below shows the Top 10 of those markets, according to the American Enterprise Institute’s Housing Center, which collected the data from FHA Neighborhood Watch:

10 Most at Risk Metros,
FHA Delinquency Rates,
August 2020

   % Delinquent        % Seriously Delinquent      FHA Share
Atlanta-Sandy Springs-Alpharetta, GA    
        21.2%                       14.2%                                   21%

Houston-The Woodlands-Sugar Land, TX    
       22.2%                      14.3%                                     19%

Chicago-Naperville-Evanston, IL    
       22.4%                     15.5%                                     14%

Washington-Arlington-Alexandria, DC-VA-MD-WV    
       22.1%                    15.5%                                       14%

Dallas-Plano-Irving, TX    
       19.2%                   12.2%                                         15%

Riverside-San Bernardino-Ontario, CA    
       17.3%                  11.1%                                           21%

Baltimore-Columbia-Towson, MD    
       19.9%                 13.2%                                           19%

San Antonio-New Braunfels, TX    
       19.0%                   11.4%                                         19%

Orlando-Kissimmee-Sanford, FL    
       20.2%                  13.9%                                           22%

Tampa-St. Petersburg-Clearwater, FL    
      17.4%              11.8%                                             20%


MEANWHILE:
New single-family home sales
rose +46% year-over-year
in August 2020,
versus August 2019,
for the largest monthly gain
since 2007.

Existing home sales were
at the highest since
August 2006.