“60-plus delinquencies” refers to a category of delinquent loans that are at least 60 days past due. This is a common measure of credit risk, as loans that are significantly past due are more likely to default. In the context of mortgages, 60-plus delinquencies would refer to homeowners who are 60 or more days behind on their mortgage payments.”
Understanding the Risks of Investing in Mortgage-Backed Securities: The Impact of Delinquency Rates
The 60-plus delinquency metric is a measure of the percentage of loans that are more than 60 days past due, and is used by creditors and lenders to determine if consumers are falling behind on their payments and are at risk of defaulting on their loans. This metric can be applied to auto loans and credit cards. It can also be broken down into prime and subprime loans, with the latter typically having higher delinquency rates. Additionally, it can be separated by fixed-rate and adjustable-rate loans. By monitoring the 60-day rates, as well as other delinquency rates, it can provide insight into the financial health of consumers and the economy. Generally, when economic conditions are favorable, delinquency rates tend to decrease, while they tend to increase when economic conditions deteriorate, resulting in higher unemployment and reduced income for consumers. Banks and mortgage lenders also track delinquency rates as any interruption in mortgage payments results in a reduction in revenue. If delinquencies persist in a poor-performing economy, bank losses can rise, leading to fewer loans being issued to consumers and businesses which can further worsen the economic conditions.
Difference Between 60-Plus Delinquencies and Foreclosure
The 60-plus delinquency rate is a metric that measures the percentage of loans that are more than 60 days past due. It is often paired with the foreclosure rate, which measures the number of homes that have been seized by a bank due to default or nonpayment of the mortgage. Together, these two metrics provide a comprehensive view of the individual mortgages that are either not being paid or are behind schedule. Since 60-plus delinquencies occur before a loan reaches 90 days past due, these loans have not yet entered the foreclosure process. Foreclosure is the legal process in which a bank seizes a home when the borrower is unable to make mortgage payments. The pre-foreclosure process typically begins when a loan is 90 to 120 days past due. At this point, the lender may file a notice of default, which is a public notice submitted to the local court stating that the borrower’s mortgage loan is in default. Borrowers can still try to work with their bank to modify the loan at this point in the process. If the loan payments are not made beyond the 90- to 120-day period, the foreclosure process moves forward, and the bank will eventually seize the home and hold an auction to sell it to another buyer. The 60-plus delinquency rate is an important early warning metric for lenders to monitor, giving them time to contact the borrower and work out a payment plan to prevent the loan from going into pre-foreclosure.
Mortgage-Backed Securities (MBS)
Mortgage loans are sometimes combined into a group known as mortgage-backed securities (MBS), which are sold to investors as a fund in which they earn interest from the mortgage loans. Unfortunately, investors may not have visibility into the current status of the loans that make up the MBS, meaning they do not know if the borrowers are behind on their payments. When the delinquency rate on past-due mortgages increases beyond a certain threshold, the MBS may face a shortage of cash and difficulty making interest payments to investors. This can lead to a re-pricing of the loan assets, which can result in some investors losing a portion or all of their invested capital.