Mortgage Delinquencies Fall in December
Black Knight's December Mortgage Monitor: Why Is It So Important? (Part 1 of 3)
The Black Knight Financial Services Mortgage Monitor
The Black Knight Financial Services Mortgage Monitor is a monthly report that provides delinquency and foreclosure data. Mortgage originators use this data to benchmark their own originations.
Black Knight Financial Services, formerly known as Lender Processing Services, is a vendor for mortgage originators. It handles mortgage processing and default management outsourcing. As a result, it comes across a wealth of top-down mortgage information that many professionals and analysts use to help make strategic decisions.
90-day mortgage delinquencies tick up to 5.64% in December
In general, mortgage delinquencies are falling as home prices rise and the foreclosure pipeline clears. In December, 90-day mortgage delinquencies stood to 5.64%. While 5.6% seems low compared to the peak of 10%, the normal level before the housing bubble was between 4% and 5%. Better economic times are helping lower delinquencies, but we still have some work to do to clear the foreclosure pipeline.
Note that Ocwen’s (OCN) recent issues with the regulators have put servicers on notice that they’ll be scrutinized closely. We’ll see if servicers pursue more modifications when a foreclosure would be in the best interest of the lender as a way to appease the government.
Declining delinquencies are good for nonagency REITs
Nonagency REITs such as PennyMac Mortgage Investment Trust (PMT), Two Harbors Investment (TWO), and Redwood Trust (RWT) take credit risks. In contrast, agency REITs that invest in government-guaranteed or government-supported mortgages, such as Annaly Capital Management (NLY) and American Capital Agency (AGNC), don’t take credit risk.
The economic backdrop right now favors nonagency REITs. A combination of a better economy, skewed risk to the downside in interest rates, and increasing prepayment speeds favor taking credit risk over interest rate risk.
Investors who are interested in trading the mortgage REIT sector as a whole should look at the iShares Mortgage Real Estate ETF (REM) or the Vanguard REIT ETF (VNQ) for more exposure to the entire REIT sector.
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