This year’s persistent decline in mortgage rates has pushed housing affordability to a 3-year high, resulting in significant purchase activity growth, particularly among the nation’s first-time homebuyers.

But
while purchasing demand may be improving, data from Black Knight indicates
that origination performance is weakening as the company determined that early-stage
delinquencies have been steadily increasing
over the past 24 months.

According
to the company’s Mortgage Monitor report, nearly
1% of all originations made in the first quarter of the year fell into delinquency
just six months after close.

“We’ve seen early-stage delinquencies
rise over the last several years, with the increase being driven primarily by
purchase loans,” said Ben Graboske, Black Knight’s president. “About 1% of
loans originated in Q1 2019 were delinquent six months after origination. While
that’s less than one-third of the 2000-2005 average of 2.95%, it represents a
more than 60% increase over the last two years and is the highest it’s been
since late 2010.”

Black Knight says the increases in
early-stage purchase loan delinquencies are more pronounced among
first-time homebuyers, as they make up more than 70% of recent GNMA purchase
loans.

The impact of their performance is now putting upward pressure on overall early-stage delinquency rates, according to the company.

“Early-stage GSE delinquencies currently stand at 0.6%, up two-tenths of a percentage point over the past 24 months, but still 40% below the market average and 60% below their own 2000-2005 average of 1.3%,” Graboske said. “Though there has been some softening in GSE purchase loan performance, it hasn’t been to the extent seen among entry-level buyers.”

“All in all, first-time homebuyer originations combined between the GSEs and GNMA increased by nearly 50% between 2014 and 2018,” Graboske continued. “However, whereas first-time homebuyers represent just over 40% of GSE purchase loans, they make up 70% of the GNMA purchase market.”

Graboske
said this concentration has led to the sharpest increase in early-stage delinquencies seen within the last few years.

“That concentration is contributing to a more significant increase in early-stage delinquencies among GNMA loans, which saw 3.3% of loans delinquent six months after origination,” Graboske said.  “That’s up 1.2 percentage points from two years ago, and though still roughly half the 2000-2005 pre-crisis average, it represents the sharpest increase we’ve seen in the market in recent years.”

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