Data from the Mortgage Bankers Association shows that the share of mortgage loans that are past due declined by 55 basis points (one basis point = one hundredth of a percent) to a seasonally adjusted rate of 6.5% in the third quarter of 2013. This is the lowest rate since the second quarter of 2008. Over the past year, the total share of mortgage loans past due has declined by 0.97 percentage points to a not seasonally adjusted rate of 6.7%. Although the current share of mortgage loans past due has declined from the high it reached in 2009, it remains above the average level over the 20 years between 1980 and 1999. As the chart below illustrates, the share of mortgages past due rose by 6.4 percentage points on a not seasonally adjusted basis to 10.4% in the fourth quarter of 2009. Since then, the share of mortgages past due has abated somewhat, falling by 3.7 percentage points to a not seasonally adjusted rate of 6.7%. However, it remains a 1.8 percentage points above the 1980-1999 average.
The recent decline in the share of mortgage loans past due reflects a decrease in the number of mortgages past due. As Chart 2 illustrates, the number of mortgages past due has declined on a 4-quarter basis for 13 consecutive quarters. In the third quarter of 2013, the latest data available, the number of mortgages past due fell by 14.8%.
The number of “whole” mortgages, mortgage loans without a late payment, has declined in recent quarters as well. In the third quarter of 2013, the number of whole mortgages fell by 1.3%. The decrease in the third quarter of 2013 marked the eighth consecutive year-over-year decline, following 3 quarters in which the number of whole mortgages did not decline. However, the decrease in the number of whole mortgages has been smaller than the decline in the number of mortgages past due. As a result, the number of mortgages past due as a share of total mortgage loans serviced has fallen.
The decline in the share of mortgages past due indicates that the mortgage market is returning to normal. However, this measure of mortgage market health may not provide a full picture of a return to normality in the mortgage market because it masks the decline in mortgage loans serviced. The number of mortgage loans serviced overall, the sum of the number of loans past due and the number of loans that are whole, has fallen on a year-over-year basis for 20 consecutive quarters. According to Chart 3, the number of mortgage loans serviced fell by 2.4% in the third quarter of 2013. The decline in the total number of mortgage loans indicates that while the growth in the number of mortgage loan defaults is slowing (outflow), fewer new mortgages are being originated to replace those that ultimately default (inflow). The net outflow in the number of mortgage loans serviced may reflect tighter lending standards that make obtaining a mortgage more difficult, but could also reflect the growing prevalence of all-cash deals to finance home purchases.