$44B in Residential First Mortgages Over 90 Days Late in Q3 2021

While the total volume of non-performing residential mortgage loans seems to have continued to decline throughout 2021,

While a hot housing market in the first half of 2021 certainly helped to keep a lid on distress in the mortgage sector, there are still enough non-performing loans to make some waves and generate great gains for investors.

Let’s dive into the latest bank data from Q3:

$21B First Position Residential Mortgages Fall into Non-Accrual Stage

While defaults appear to have been falling across all categories since Q3 2020, there are now still almost $21B in first mortgages on 1-4 family properties that lenders have shifted into the “non-accrual” category.

This is in addition to almost $24B in 90 day plus late loans which have not yet been classified as non-accrual.

Behind that are another $13.5B in newly delinquent and defaulting residential first position mortgages between 30 to 89 days late. That makes about $45B in 1-4 family first-lien loans that have fallen into default this year alone.

Residential REOs

933 banks reported that they held nearly $800M in residential REO at the end of the third quarter.

That’s just over 1% of the entire pool of distressed loans being reported at the moment.

As eviction and foreclosure bans fade, this pool could become supersized in the quarters ahead, though providing demand continues, expect REOs to be snapped up by investors quickly.

Non-Performing Residential Loans

The bulk of distress remains in the 90 day plus late stage of default among first position mortgage notes. A position from which few borrowers may recover.

As of Q3, non-performing first liens being reported include:

· $13.5B in 30-89 day late loans

· $24B in 90 day plus late and still accruing loans

· $21B in non-accrual loans

Junior Liens

Starting Q4, there are still over $5B in nonaccrual revolving lines of credit. And $1B more 30-89 day late HELOCs are coming behind those.

Looking Ahead

The total value of non-performing 1-4 family mortgages seems to have continually declined through the first three quarters of 2021. Yet, there is still close to $70B in distressed loans on banks’ books.