(Bloomberg) – Federal Housing Administration mortgages – the affordable path to home ownership for many first-time buyers, minorities and low-income Americans – now have the highest default rate in at least four decades.
The share of late FHA loans rose nearly 2% in the second quarter, up about 9.7% in the previous three months and the highest level in records dates back to 1979, the Association of Mortgage Bankers said Monday. The delinquency rate for conventional loans, in comparison, was 6.7%.
Millions of Americans stop paying their mortgages after losing jobs during the coronavirus crisis. Those at the lower end of the income scale are more likely to have FHA loans, allowing borrowers with shaky credit to buy homes with small down payments.
For now, most of them are protected against foreclosure by the federal rewards program, in which lenders with pandemic-related difficulties can delay payments up to a year without penalty. Last month, the MBA said that about 4.1 million homeowners, representing 8.2% of loan balances, were in debt.
Housing has held up better than expected in an otherwise volatile economy, with record-low mortgage rates boosting sales of both new and previously owned homes. With job losses and Congress slowing to act on a fresh incentive package, that momentum could be threatened.
New Jersey had the highest FHA delinquency rate, at 20%. The state also had the largest increase in the overall late payment rate, jumping to 11% in the second quarter from 4.7%. Next were Nevada, New York, Florida and Hawaii – all states with a high proportion of vacancies and job vacancies that were particularly hard hit by the pandemic, the MBA said.
But the current spike in abuses is different from the Great Recession, thanks in part to years of gains from house prices and accumulation accumulation, according to Marina Walsh, vice president of sector analysis for the banking group.
(Adds MBA analyst comment.)
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