Using Great Recession mortgage performance as a point of comparison, Black Knight estimates that an unemployment rate of 15%, as projected by Goldman Sachs for Q2 2020, could result in 3.5 million new mortgage delinquencies
Data & Analytics division of Black Knight, released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. This month, in light of the growing impact of the COVID-19 pandemic on the economy, Black Knight drilled down into aspects of its extensive white paper exploring the ramifications of this crisis for the real estate and mortgage industries. As Black Knight Data & Analytics President Ben Graboske explained, any attempt to quantify potential delinquencies from the current situation is challenging, as there have been no true corollaries in history.
“Trying to gauge the impact of COVID-19 on mortgage performance is as much an art right now as a science,” said Graboske. “The fact is that there is no true point of comparison in the nation’s recent history for analysts to model against. That said, there are some historical clues that can help shed light. In the Great Recession, for example, the number of past-due mortgages tripled over four years, increasing by more than 5.5 million, as the unemployment rate rose relatively sharply from 4.5% in 2006 to 10% by the end of 2009. Today, we’ve seen more than 10 million people file for unemployment since the coronavirus was labeled a pandemic on March 11, which should put the unemployment rate at roughly 9.5%. Using the Great Recession as a point of comparison, Black Knight’s AFT modeling team looked at potential delinquencies under different unemployment scenarios, and at 10%, we could expect 2 million new mortgage delinquencies. That would put the total at 4 million delinquencies with a national non-current rate of 7.5%. If unemployment climbs to the 15% recently projected by Goldman Sachs1, we could be looking at 5.5 million past-due mortgages. Should unemployment reach the 32% projected by the Federal Reserve Bank of St. Louis2, the non-current rate could spike to nearly 19%, surpassing what we saw during the Great Recession, with 10 million homeowners past due on their mortgages.
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“The various forbearance programs being offered to borrowers via the recently passed CARES Act, as well as via individual agencies and mortgage servicers, are a key difference today. Mortgage performance in the wake of natural disasters gives an idea of how well such programs have worked to help keep people in their homes. Pointing to the effectiveness of forbearance programs in a time of crisis, of the more than 140,000 seriously delinquent mortgages caused by the 2017 hurricane season, just 1% of homes were lost to foreclosure or short sale two years after the storms. Although, should financial disruptions become more long-term, additional assistance programs may become necessary. Of course, a surge of forbearance requests brings its own challenges, both operational and financial.
