In addition to a rise in September’s composite delinquency rates, there is still reason for lenders to be especially careful to avoid risk when making loans, as one agency reports its measure of the nation’s mortgage delinquency rate began to rise after a pattern of falling last month.
A recent report by S&P/Experian found that after nine months of decreasing rates, private market mortgage default rates rose from September to October. Second mortgage delinquency rates followed a similar pattern, rising after months of declining.
New initiatives by the government as a response
The recent uncertainty in the housing market has caused more changes by the Federal Housing Administration (FHA). The FHA announced it would increase the number of distressed loan sales the administration would buy in each quarter.
Since July, the FHA purchased 5,000 distressed loans through the Distressed Asset Stabilization Program (DASP), hoping to keep potential mortgage defaulters from delinquencies. A recent announcement by the Department of Housing and Urban Development, which oversees the FHA, shared that the federal agency would double the number of loans purchased, growing to 9,000 to 10,000 loans each quarter to further stabilize the market.
The DASP, which began this year, allows private investors to purchase mortgages that are at least six months delinquent on their mortgage and have begun foreclosure proceedings. The DASP began as a pilot program in 2010 before growing into an official FHA program.
By selling pools of mortgages as less than the outstanding balance, borrowers have less chance of defaulting on mortgages, and investors are able to profit. While the HUD explained the program’s future growth, DASP is only working in the most distressed areas of the United States.
Between recent delinquency findings and the push by the FHA to stabilize the market, the housing market remains uncertain. For firms processing loan applications, using risk management software is especially important as delinquency rates begin to reverse past patterns.