June FHA MBS Report

FHA mortgage delinquency rates in the GNMA II portfolio saw a notable increase in June, with headline delinquency rising from 9.96% to 10.67% month-over-month and serious delinquency increasing from 3.21% to 3.32%. Year-over-year, headline delinquencies are up 8% and serious delinquencies are up 27%. This materializes the expected second-half spike, with significant jumps in early-stage delinquencies (e.g., 35k more 1-month late borrowers) portending further increases in serious delinquencies. While partial claims activity, covering 24,746 mortgages, slightly decreased from prior months, loans with partial claims remain 5-7 times more likely to be delinquent, underscoring ongoing credit performance concerns within the FHA sector.

Analysis

The expected seasonal spike in Federal Housing Administration (FHA) mortgage credit stress has materialized, as reflected in the June Ginnie Mae (GNMA) MBS data. Headline delinquency rates within the GNMA II portfolio rose month-over-month from 9.96% to 10.67%, while serious delinquencies (SDLQ) also increased from 3.21% to 3.32%. The year-over-year trend is more pronounced, with headline delinquencies up 8% and SDLQs showing a significant 27% increase from 2.61% last year. A sharp jump in early-stage delinquencies, including 35,000 new borrowers one month late, functions as a leading indicator that suggests serious delinquency rates will likely continue to climb in the coming months. A key area of concern remains loans with a history of partial claims, which are 5 to 7 times more likely to be delinquent. Although the volume of new partial claims decreased in June, the high rate of repeat recipients (48%) highlights persistent borrower distress. Notably, the credit deterioration is not uniform; recently originated modified loans are performing at or near all-time highs for delinquency, whereas standard recent originations are performing similarly to last year, isolating the primary risk to re-performing and modified loan cohorts.

Key Decisions for Investors

• Investors holding Ginnie Mae mortgage-backed securities should anticipate higher credit losses, as the 27% year-over-year surge in serious delinquencies points to a clear deterioration in underlying collateral quality.
• It is prudent to scrutinize the exposure of mortgage servicers and originators to high-risk FHA loan segments, particularly portfolios with significant concentrations of modified loans, which are the primary drivers of this negative trend.
• The sharp increase in new 30- and 60-day delinquencies is a strong leading indicator of further credit stress, warranting a cautious or underweight stance on assets tied to the FHA-insured housing segment for the second half of the year.