Mortgage Delinquencies Analysis

While GNMA’s have historically had higher delinquencies than FNMAs, both groups are seeing modest drops in rates since their peaks in November of 2023.

This raises two points of Interest - running counter to conventional wisdom.

1. Delinquencies do not follow the commonly accepted SDAC (standard default analysis) curve (shown in the charts below as a red line).  As you can see, mortgagors seem to be somewhat erratic in their payments for the first two years but then get things under control for the next several years.  It’s not until year five that mortgagors become serious about delinquencies.  At this point, it is probable that the novelty of the new house has worn off, the drudgery of the monthly payments has gotten annoying, and the passage of time has made space for life-changing events - think divorce, unemployment, etc. Subsequent to that, delinquencies tend to taper off, coincident with increasing equity (hopefully) in their homes.

2. High FICO loans, both conventionals and governments, have a lower probability of going one month delinquent than their lower FICO peers; this makes intuitive sense. However, once they become one and two months late, the higher FICO loans have a materially higher risk of going through default.  Something has happened that they cannot seem to fix.

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