Stricter lending standards result in improved mortgage performance

Mortgage Delinquencies Are Beginning to Dip

Changes stemming from the financial crisis of 2008 have led to a more promising outlook in the housing market, mainly because mortgage performance has improved. This improvement has been driven by stricter lending standards, which banks and other lenders will have to maintain going forward.

According to the Office of the Comptroller of the Currency, borrowers are doing a much better job managing their mortgages. The third-quarter Mortgage Metrics Report stated that 91.4 percent of mortgages were current and performing at the end of the quarter, which is up from 88.6 percent the previous year. Meanwhile, mortgages with payments 60 days or more past due fell to 3.6 percent in Q3, compared to 4.4 percent  in 2012.

A significant amount of focus has been put on the transfer of mortgage servicing rights. These transactions have increased in frequency as financial institutions have sought to transfer servicing to specialized firms that are more equipped to handle loan modifications. The Consumer Financial Protection Bureau has been advising lenders to follow best practices during the handover of borrower information, which could slow the rate of transfers. However, Rick Sharga, executive vice president at, told the online publication Housing Wire that this may not have too much of an impact on loan performance. He explained that while transfer improvements have made a difference, it is relatively small.

“Transfers of servicing do not in and of themselves change performance of individual loans,” he said. “A borrower and their new servicer still have to work toward resolving delinquency, which may occur through a borrower catching up on payments, paying the loan in full, refinancing, qualifying for a foreclosure prevention action or completing foreclosure, short sale or deed-in-lieu of foreclosure.”

He concluded that ultimately, mortgage performance improvements are tied to tighter lending standards and underwriting guidelines, which all lenders will have to maintain. Investing in application processing software can allow lenders to follow best practices and ensure they are mitigating the risk of poor mortgage performance.

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