MGIC Investment

Overall Mortgage Delinquency Rate Hovers Near All-Time Low in August

The number of borrowers classified as seriously delinquent (90 or more days late) on their mortgage payments in August dropped to the lowest level recorded since April 2020, while the overall delinquency rate remained near a record low. The U.S. unemployment rate has stayed below 4% since the beginning of 2022, and the still-healthy job market continues to help homeowners with a mortgage make payments on time. However, as the cost of basic necessities mounts with rising inflation, mortgage delinquencies could increase in the coming months as more borrowers see their monthly household budgets stretched further.


“The large rise in home prices — up 19% in January from one year earlier, according to CoreLogic indexes for the U.S. — has built home equity and is an important factor in the continuing low level of foreclosures,” said CoreLogic’s chief economist Frank Nothaft. 

In a new paper, we model jointly two measures of payment delinquency rates and the rate of flow into foreclosure (Aron and Muellbauer 2016). We find that there were three key economic drivers: the debt service ratio (a measure of debt service costs relative to income), the proportion of homes in negative equity (where the value of the home is less than that of mortgage debt), and the unemployment rate. Previous lending quality and access to refinancing possibilities, government income support for borrowers with payment problems, and the forbearance policies exercised by lenders also play a role.

With mainly adjustable rate mortgages in the UK, the unprecedented cuts in the base rate in 2008-09 quickly brought down mortgage payments for most borrowers. This supported consumer spending, preventing a deeper recession. House prices fell far less in most of the UK than in the US, partly because there was no pre-crisis building boom, and partly because average lending quality towards the end of the preceding credit boom was better than in the US. With no tax relief allowed on mortgage payments for owner-occupiers in the UK, UK borrowers also had lower incentives to take on higher leveraged debt than in the US. As a result, negative equity was far lower than in the US.  

Furthermore, our estimates suggest that government intervention in the form of more generous income support for borrowers with payment problems lowered the foreclosure rate by at least 21%, and increased forbearance by lenders lowered the rate by perhaps 13%.

In the US, with mainly fixed-rate mortgages, debt service ratios did not fall rapidly after the mortgage crisis began. It seems likely that increased payment delinquencies were driven mainly by negative equity – borrowers expecting to foreclose and seeing no point in keeping up with payments – and higher unemployment. The trough-to-peak rise in the unemployment rate was 7% in the US, but 4% in the UK.

The UK bank base rate doubled from 7.5% to 15% from 1987 to 1990, following the house price and credit boom of the 1980s, and mortgage rates followed.

We estimate that around 20% of mortgages were in negative equity at the worst point, and payment arrears (delinquencies) reached record proportions (Figure 2).

We also introduce, for the first time in the literature, a theory-justified estimate of the proportion of mortgages in negative equity as a key driver of aggregate repossessions and arrears. This measure is based on an average debt-to-equity ratio, corrected for regional deviations, and uses a functional form for the distribution of the debt-to-equity ratio checked on Irish micro-data from the Bank of Ireland, and Bank of England snapshots of negative equity (e.g. Bank of England 1992).



Q3 2022

  • The percentage of loans insured with primary insurance that were delinquent at September 30, 2022 was 2.17%, compared with 2.28% at June 30, 2022, and 3.20% at September 30, 2021.

For many Americans, the biggest hurdle in buying a home is saving for a down payment. That barrier has become
even more acute in recent years as nationwide home price appreciation (HPA) has skyrocketed due to severely
limited affordable housing supply and record low interest rates through much of 2021. According to the Federal
Housing Finance Agency’s (FHFA) House Price Index (HPI), HPA rose 18.2% from January 2021 to January
2022.1 It was a dynamic, fast developing market and the private MI industry had a central role in helping low down
payment borrowers navigate through these challenges and gain access to housing.

Since 1957, private MI has helped more than 37 million families become homeowners.2
In 2021, the private MI
industry helped nearly 2 million borrowers secure mortgage financing.3
Of the total number of borrowers using
private MI, more than 40% had annual incomes below $75,0004
and nearly 60% of purchase loans went to firsttime homebuyers.5
Further, the industry supported approximately $585 billion in mortgage originations for new
home purchases and refinance loans.6
Private MI truly helps first-time, minority, and low- to moderate-income
(LMI) buyers who cannot afford to put down 20%.
Additionally, private MI has proven to be a reliable method for shielding the GSEs, Fannie Mae and Freddie Mac,
as well as American taxpayers, from losses on mortgage credit risk. At the end of 2021, the industry insured
$1.4 trillion of mortgages, including $1.2 trillion of mortgages backed by the GSEs.7
Private MI companies have
also paid nearly $60 billion in claims8
since the 2008 financial crisis and housing market downturn claims the
government and taxpayers did not have to pay