Mortgage distress up 90% this year, counseling provider finds

Stress on other consumer debt classes has been slow to impact mortgage performance, but a rise in housing default clients at one counseling provider adds to signs that conditions are changing.

The number of people seeking help with delinquent home loans is up 90% year-over-year, nonprofit Money Management International reported Monday.

MMI attributed the jump to high home prices and dwindling pandemic relief, noting that there's one demographic that's been strained the most by a nearly 52% increase in housing valuations from January 2019 to December 2022.

"The disproportionate increase in home prices compared to income levels places added pressure on the budgets of those in their 30s," said Kate Bulger, vice president, MMI, in a press release, noting that many people make their first home purchase at that age.

Overall, the nonprofit's housing default clients have had 12% more unsecured debt on average in 2023 than they did in 2022, and thirty-somethings had even more at 24%.

"This demographic carries the highest student-loan debt burden, with an average balance of around $42,000, further straining their finances," Bulger said.

But across the board the number of consumers reporting that they are experiencing "high or very high" levels of financial distress since 2020 is up 18%, according to the nonprofit organization.

Consumer delinquencies for all debt types hit a 12-month high in September, according to VantageScore's recent CreditGauge report.

However, the average mortgage delinquency rate is still historically low. The Black Knight database, now controlled by its recent acquirer Intercontinental Exchange, showed that in September it was still 0.75% lower than before the pandemic.

And while millennials now in their 30s are struggling with high debt levels, homebuyers who are part of the next demographic to follow them into the market could be in a relatively better financial position, according to research by lending data and analytics company Dv01.

"Gen Z's strong standing across student debt, median income, wage prospect and current homeownership metrics position them favorable for future homeowners," Vadim Verkhoglyad, vice president and head of research at Dv01, said in a recent op-ed.

However, Gen Z is not yet influential within the mortgage market and was the age demographic that experienced the greatest decline in originations in September, according to the last CreditGauge report. New account activity involving Gen Z borrowers fell 0.38% in the month. Millennials and other generations saw slight declines in that category too, but to a lesser extent.

Diminishing originations can put pressure on lenders to relax underwriting in ways that can contribute to performance issues later. The Mortgage Bankers Association's last monthly report monitoring this suggests there's been some slight loosening but that credit is still historically tight.

The average VantageScore has been stable at 701 for three consecutive months, which also suggests underwriting remains strong. (VantageScore provides one of two modernized credit measures mortgage investors will use in the future to fulfill a congressional mandate.)

Part of what may be sustaining loan performance is that while the phaseout of pandemic relief has progressed, it's not over, and some of it has evolved into more permanent successor programs.