What customers say

Mortgage borrower pencils in his monthly budget with his spouse at a desk in a home office on a pad of paper and calculator.
Homeowner determines his budget with the aim to prevent a delinquency or default of his mortgage payment.

Should You Be Concerned About the Recent Uptick in Defaults?

Thanks to the current high rate environment, servicing has become fairly profitable for mortgage organizations. Yet the housing market is nothing if not cyclical, and what comes up eventually comes down—and vice versa.

Recently, for example, the mortgage delinquency rate has been slowly creeping higher, as rising inflation and growing debt take a toll on many homeowners. Fortunately, there is technology available that not only enables servicers to lower their default management costs, but can improve their ability to assist customers when they need help the most.

What the Numbers Say

According to statistics from the Mortgage Bankers Association, there’s been a slight but notable increase in mortgage delinquencies for the past year now. The trade group’s most recent National Delinquency Survey found the delinquency rate for mortgage loans on one-to-four-unit residential properties rose to 3.88% by the end of the fourth quarter of 2023, up 26 basis points from the previous quarter.

Related: How Prepared Are You for Rising Default Rates?

Historically speaking, this number is still fairly low. Since 1979, the average delinquency rate has been 5.25%. But there are some particularly worrying trends happening today. For example, FHA delinquencies rose 131 basis points in the fourth quarter, which is a sign that many first-time homebuyers are experiencing financial strain.

One of the primary factors behind this uptick has been inflation. The rising costs for goods and services have caused many Americans to lean on credit for basic household needs, which has placed a major strain on their ability to make timely mortgage payments. In fact, according to the New York Fed, 8.5% of credit card balances and 7.7% of auto loans were in delinquency during the fourth quarter, which are both above pre-pandemic levels.

Additional Factors at Play

There are other reasons to be concerned about current default trends, including the fact that the mortgage delinquency rate often mirrors the job market. While employment remains fairly strong, the MBA is forecasting slower hiring in the year ahead, which is likely to push defaults higher. Another factor is that many struggling homeowners are sitting on loans with very low interest rates. Even if they could refinance, refinancing at today’s higher rates may not offer much financial relief.

Four business people and mortgage homeowners are seen from the chest down working on laptop computers
Mortgage delinquency rates often mirrors the job market.

To be sure, most mortgage servicers are aware of rising delinquency rates and have been taking steps to minimize the impact on their businesses. Yet many fail to realize the significant role their servicing platform plays in this endeavor.

Related: How Prepared Are You for a Disaster?

While technology can help streamline default processes and simplify borrower interactions, the wrong system can keep servicers mired in costly manual processes and even create delays, which can cause servicers to lose track of loss mitigation deadlines and other compliance issues. And unfortunately, many legacy platforms lack the level of flexibility or customization that servicers need to effectively manage defaults and homeowner requests for assistance.

How We Can Help

Clearly, today’s default challenges point to the need for proven, scalable servicing technology that empowers servicers to optimize their resources. Which is exactly what we provide.

Our Mortgage Servicing Cloud platform is built on cloud infrastructure, so it’s constantly being updated with new tools and features to improve servicing efficiency. It also includes a highly configurable default management module for streamlining your default processes, such as the ability to track and collect delinquent payments and fees.

RelatedHow Borrower Communication Preferences Are Evolving

And because engaging and collaborating with distressed borrowers is critical to the health of your portfolio, MCC’s Mortgage Servicing Cloud is equipped to interface with borrower-facing tools as well as IVR and power-dialers, so your customers are sure to get the help they need, when they need it. You’ll also be supported by our excellent customer care team—so if there’s ever any problems or issues, you’ll get the help you need, too.

At the end of the day, the uptick in mortgage defaults may be nothing to freak out over. But it is an ideal opportunity to prepare.

To learn more about how MCC Mortgage Solutions can help, just reach out to us at 248-350-9290 or info@mccmortgagesolutions.com.