What Are 60-Plus Delinquencies?
The 60-plus delinquency rate is a metric that is typically used for the housing industry to measure the number of mortgage loans that are more than 60 days past due on their monthly payments. A 60-plus delinquency rate is often expressed as a percentage of a group of loans that have been underwritten within a specified time period, such as one year.
The 60-plus delinquency metric can also be used for auto loans and credit cards. The 60-plus delinquency rate is helpful because it shows creditors and lenders whether consumers are falling behind on their payments and if they're likely to default on their loans.
- The 60-plus delinquency rate is a metric typically used to measure the number of mortgage loans that are more than 60 days past due on their monthly payments.
- A 60-plus delinquency rate is often expressed as a percentage of a group of loans that have been underwritten within a specified time period, such as one year.
- The 60-plus delinquency rate is helpful because it shows lenders the consumers that might default on their loan.
Understanding 60-Plus Delinquencies
The 60-plus rate may be split into prime loans and subprime loans. Subprime loans are for borrowers with a poor credit history. The 60-plus delinquency rate on subprime loans is typically higher than for prime loans. Oftentimes, 60-plus rates are published separately for fixed-rate loans versus adjustable-rate loans, which have a variable rate and might have the option to reset to a fixed rate later in the term.
Monitoring the 60-day rates as well as other delinquency rates for borrowers can provide enormous insight into the financial health of consumers in an economy. If economic conditions are favorable, meaning steady economic growth, delinquency rates tend to fall.
Conversely, as economic conditions deteriorate, unemployment tends to rise as consumers are laid off from their jobs. With less income, it becomes more difficult for consumers to make their mortgage payments, leading to a spike in delinquencies throughout the economy.
Also, banks and mortgage lenders track delinquency rates since any interruption in mortgage payments represents a reduction in revenue. If delinquencies persist in a poorly-performing economy, bank losses can rise as fewer mortgage payments are received, which leads to fewer new loans being issued. Fewer loans being issued to consumers and businesses can exacerbate the already-poor conditions within an economy, making a recovery more challenging.
60-Plus Delinquencies and Foreclosure
The 60-plus delinquency rate is often added to another negative event measure, the foreclosure rate for the same group of loans. The two metrics provide a cumulative measure of the individual mortgages that are either not being paid at all or being paid behind schedule.
Since 60-plus delinquencies are less than 90 days, the loans have yet to enter the foreclosure process. Foreclosure is the legal process in which a bank seizes a home due to default or nonpayment of the mortgage payments by the borrower. Although each lender may differ, typically between 90 to 120 days past due, a home loan enters the pre-foreclosure process.
When a borrower is 90 days past due, the lender usually files a notice of default, which is a public notice submitted to the local court stating that the borrower's mortgage loan is in default. Borrowers can still try to work with their bank to modify the loan at this point in the process.
If the loan payments are still not made beyond the 90- to 120-day period, the foreclosure process moves forward. The bank will eventually seize the home, and an auction will be held to sell the home to another buyer. As a result, the 60-plus delinquency rate is a critical early-warning metric for lenders to monitor and provides banks with an alert that a borrower might be struggling financially. Also, it provides time for the bank to contact the borrower and work out a payment plan to prevent the loan from going into pre-foreclosure.
Mortgage-Backed Securities (MBS)
Mortgage loans are sometimes grouped into a pool of loans that make up a mortgage-backed security (MBS). An MBS is sold to investors as a fund in which they earn interest from the mortgage loans. Unfortunately, investors often have no idea whether the loans that comprise the MBS are current—meaning the borrowers are not behind on their payments.
If the delinquency rate on past-due mortgages rises beyond a certain level, the mortgage-backed security may experience a shortfall of cash, leading to difficulty making the interest payments to investors. As a result, a re-pricing of the loan assets can occur, resulting in some investors losing a portion or most of their invested capital.
What to Do When Delinquent on a Mortgage
Homeowners are usually at risk of losing their homes in an economic downturn. But certain protections were put in place to help homeowners affected by the COVID-19 pandemic. In 2020, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which included a provision that allowed borrowers to skip their mortgage payments for up to a year—a process called forbearance. It also provided a moratorium on evictions.
The moratorium on foreclosures and evictions for enterprise-backed mortgages, including those backed by the U.S. Department of Agriculture (USDA) and the Federal Housing Administration (FHA), has been extended several times. The forbearance expires on September 30, 2021; and, on June 25, 2021, the CDC announced it would extend the eviction moratorium a final time to July 31, 2021.
Below are some of the steps and key portions of your rights under the forbearance program that borrowers can opt into if they're delinquent on their mortgage payments.
Call Your Lender
Borrowers must contact their lender or bank that issued the mortgage loan and request forbearance. It's important that borrowers do not stop their mortgage payments until they are approved for forbearance from the lender.
Still Owe the Payments
If approved, forbearance will cause any of your skipped payments to be added to the end of the loan's term, meaning the length of the loan will increase. In other words, borrowers still need to make those payments, but instead of making the payments in the next few months, those payments will be added to the end of the payment schedule for the mortgage.
The good news is that there are no penalties for delaying the payments as a result of forbearance. Also, the missed payments won't hurt your credit score, which is a numeric representation of your creditworthiness and ability to pay back your debt.
Not all mortgage loans qualify. The program typically limits approval to mortgages that are backed or funded by government-sponsored entities (GSEs), such as Fannie Mae or Freddie Mac. As a result, it's important to contact your lender to see what type of mortgage you have. As mentioned above, the emergency measures signed during the COVID-19 pandemic affect mortgages backed by agencies such as the USDA and the FHA.
Example of 60-day Mortgage Delinquencies
The Mortgage Bankers Association (MBA) tracks mortgage delinquency rates for the U.S. economy. The mortgage delinquency rate peaked at 8.22 percent in the second quarter of 2020 and within three quarters has dropped by 184 basis points to 6.38 percent, marking the sharpest decline in such a short period of time.
Martina Walsh, the MBA's director, also noted that Q1 2021's earliest stage delinquencies—the 30-day and 60-day delinquencies combined—dropped to the lowest levels since the inception of the survey in 1979.
FHA mortgage loans—those backed by the Federal Housing Administration—had the highest delinquency rate in Q1 2021 of all loan types at 14.67%.
The report also noted that while many areas saw improvement from their mid-pandemic highs, delinquency rates as a whole are still higher than they were pre-pandemic.