The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.73 percent of all loans outstanding at the end of the fourth quarter of 2020, according to the Mortgage Bankers Association's (MBA) latest National Delinquency Survey.

For the purposes of the survey, MBA asks servicers to report loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage. The delinquency rate was down 92 basis points from the third quarter of 2020 and up 296 basis points from one year ago. The percentage of loans on which foreclosure actions were started in the fourth quarter remained unchanged from the last two quarters at a survey low of 0.03 percent.

"For the second consecutive quarter, homeowners' ability to make their mortgage payments improved," said Marina Walsh, CMB, MBA's Vice President of Industry Analysis. "The 92-basis-point drop in the delinquency rate in the fourth quarter was the biggest quarterly decline in the history of MBA's survey dating back to 1979. Total mortgage delinquencies across the three loan types - conventional, FHA, and VA - and across the major stages of delinquency - 30-day, 60-day, and 90-day - declined from last year's third quarter."

According to Walsh, the decline in mortgage delinquencies at the end of 2020 tells only part of the story. Delinquencies track closely with unemployment, and while the rate fell from an April 2020 peak of 14.8 percent to 6.3 percent in January, there are still 6.5 percent fewer jobs than before the pandemic. Homeowners in service industries such as leisure and hospitality are facing longer-term hardships, and they are more likely to have FHA and VA loans. At the end of the fourth quarter, the seriously delinquent rate for FHA and VA loans reached record highs of 11.19 percent and 5.96 percent, respectively.

"Mortgage forbearance, foreclosure moratoriums, enhanced unemployment benefits, and stimulus payments have helped distressed homeowners remain in their homes. Additional stimulus and homeowner relief is likely necessary until economic growth picks up later this year. Longer term, loss mitigation alternatives such as permanent modifications, payment deferrals, and loan payoffs - through either a refinancing or home sale - may be needed for these homeowners to recover," added Walsh.

Key findings of MBA's Fourth Quarter of 2020 National Delinquency Survey:

• Compared to last quarter, the seasonally adjusted mortgage delinquency rate decreased for all loans outstanding. By stage, the 30-day delinquency rate decreased 8 basis points to 1.78 percent, the lowest rate since the survey began in 1979. The 60-day delinquency rate decreased 25 basis points to 0.77 percent, and the 90-day delinquency bucket decreased 60 basis points to 4.18 percent.
  
  
• By loan type, the total delinquency rate for conventional loans decreased 84 basis points to 5.09 percent over the previous quarter. The FHA delinquency rate decreased 94 basis points to 14.65 percent, and the VA delinquency rate decreased by 87 basis points to 7.29 percent.
  
  
• On a year-over-year basis, total mortgage delinquencies increased for all loans outstanding. The delinquency rate increased by 227 basis points for conventional loans, increased 627 basis points for FHA loans, and increased 365 basis points for VA loans.
  
  
• The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 0.56 percent, down 3 basis points from the third quarter of 2020 and 22 basis points from one year ago. This is the lowest foreclosure inventory rate since the second quarter of 1982.
  
  
• The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 5.03 percent. It decreased by 13 basis points from last quarter and increased by 327 basis points from last year. The seriously delinquent rate decreased 26 basis points for conventional loans, increased 43 basis points for FHA loans, and increased 19 basis points for VA loans from the previous quarter. Compared to a year ago, the seriously delinquent rate increased by 232 basis points for conventional loans, increased 772 basis points for FHA loans, and increased 404 basis points for VA loans.
  
  
• The five states with the largest year-over-year increases in their overall delinquency rate were: Nevada (494 basis points), Hawaii (446 basis points), New Jersey (435 basis points), New York (424 basis points), and Florida (419 basis points).

Note: An estimated 2.7 million homeowners were on forbearance plans as of January 31, 2021. As previously stated, for the purposes of this survey, MBA asks servicers to report the loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage.