What Mortgage Delinquencies Tell Us About the Future of Foreclosures in the Prescott AZ Area

You may be seeing headlines about rising foreclosures. And if that makes you nervous that we’re headed for another crash, here’s what you should know. 

According to ATTOM, during the housing crash, over nine million people went through some sort of distressed sale (2007-2011). Last year, there were just over 300,000.

So, even with the recent increase, we’re talking about numbers that are still dramatically lower. But what does the future hold? Is a wave coming? The short answer is no.

Here’s why. Experts in the industry view mortgage delinquencies (loans that are more than 30 days past due) as an early indicator of potential foreclosures down the line. The latest data on delinquencies is reassuring about the market as a whole.

Currently, delinquencies as a whole are consistent with where we ended last year, indicating that we’re not seeing the kind of increase that would signal widespread trouble.

However, there are some key indicators to continue monitoring. Marina Walsh, Vice President of Industry Analysis at the Mortgage Bankers Association, explains:

“While overall mortgage delinquencies are relatively flat compared to last year, the composition has changed.”

Right now, borrowers with FHA mortgages make up the biggest share of new delinquencies (see graph below):

And here’s why that may be happening. Borrowers with FHA mortgages may be more susceptible to economic shifts. With recession fears, stubborn inflation, employment challenges, and more, it's understandable that this segment of the market may be feeling the impact a bit more. But that doesn’t mean it’s a signal that a crash is coming.

If you look back at the graph, it shows that while there are more FHA loans experiencing hardship than the norm, delinquency rates for other loan types remain low and stable. During the crash, delinquency rates were significantly elevated for all four categories.

That means the broader mortgage market is on much firmer footing than it was back in 2008. As ResiClub says:

“The recent uptick in mortgage delinquency seems to be concentrated among FHA borrowers, however, mortgage performance remains very solid when viewed in light of the twenty-year history of our data.”

The Region with the Most FHA Loans

Here’s another reason this isn’t a signal of trouble ahead. FHA loans account for approximately 12% of all home loans in the United States. But like anything else in housing, local data matters. There are certain regions of the country where this type of loan is more prevalent than others, particularly in the southern United States.

The map below does not indicate the number of FHA loans that are delinquent. It just shows the overall concentration of FHA loans by state, so you can see which regions have the most significant volume (see map below):

As the Federal Reserve Bank of New York explains:

“Looking at geographic concentrations of loans, recent data indicate that a higher proportion of mortgage balances are delinquent in many of the southern states . . . we see that higher delinquency rates coincide with a higher share of FHA loans across states.”

Just remember, even the delinquency rates we’re seeing now aren’t as high as they were in 2008. Again, this is not a signal of a crisis. But it is something experts will monitor in the months ahead. 

If You’re Experiencing Financial Hardship

No one wants to see anyone face the challenges of foreclosure. But know that, if you’re a homeowner struggling with payments, you’re not alone – and you do have options.

The first step is to contact us at The Bergamini Group and your mortgage provider. In many cases, you may be able to set up a repayment plan or explore loan modifications to help you stay on track. And for many homeowners today, you may also have enough equity to sell your house, or you could consider a short sale to avoid foreclosure. Odds are, at least some of these delinquencies will follow that route, since homeowners today have near-record amounts of equity in their homes. It may be worth exploring whether that could be an option for you as well.