By the Numbers
Mapping MBS delinquencies and speeds
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Many Southeastern states are seeing higher delinquency rates in FHA, VA and conventional mortgages as the housing market cools in those states. Other regions facing struggling borrowers include states in the upper Midwest and in the Northeast. However, discount prepayment speeds that are primarily driven by housing turnover have stayed robust in most of those states.
Delinquency rates
The number of delinquent FHA loans has been rising over the past couple of years. The highest delinquency rates are in various states in the Southeast, stretching from Texas to South Carolina (Exhibit 1). Louisiana stands out as the worst performing state, with 5.62% of its FHA loans at least 60 days delinquent Only DC is higher, at 6.17%. Many states in the upper Midwest, like Illinois and Michigan, also have high delinquency rates. Many Northeastern states are performing poorly too. This stands in contrast to most states in the western half of the country, many of which have delinquency rates below 4%.
Exhibit 1. FHA delinquency rates are highest in the Southeast, upper Midwest, and Northeast.
As of 7/2024.
Source: Ginnie Mae, Santander US Capital Markets.
Loans guaranteed by the Department of Veterans affairs exhibit better credit performance than FHA loans, but the relative behavior across regions is like the FHA (Exhibit 2). The VA loans in the worst-performing states have delinquency rates on par with middle-of-the-pack FHA states. Louisiana is the weakest state, with 3.64% of loans delinquent. And some states’ VA loans are performing relatively worse compared to other states. Most notably, this includes Texas and Florida, which loans are often pooled separately. VA delinquency rates may also be somewhat elevated since the VA has asked servicers to pause some foreclosures while it implements a new loss mitigation program.
Exhibit 2. VA 60+ day delinquency rates by state.
As of 7/2024.
Source: Ginnie Mae, Santander US Capital Markets.
Conventional loans have even lower delinquency rates than VA loans (Exhibit 3). The worst performing conventional states are roughly middle of the pack compared to VA loans. Unlike FA and VA loans, conventional delinquency rates tend to be lower in northeastern states relative to other states. Meanwhile, states like Kentucky, Missouri, and Tennessee shift into higher delinquency buckets, and Texas and Florida shift into the top bucket. Most western states, except for Nevada and Arizona, still look good compared to other states.
Exhibit 3. Conventional 60+ day delinquency rates by state.
As of 7/2024.
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
Discount prepayment speeds
Prepayment speeds FHA loans in discount pools, primarily due to housing turnover, have been fastest in many Midwest and Northwest states (Exhibit 4). States like Kansas, Missouri, and South Dakota posted average speeds of 6.5 CPR to 7.2 CPR over the last 12 months. Speeds tended to be weakest in many of the states with higher delinquency rates, including Florida and Texas, which have been routinely used to create specified pools. Many states on or near the West Coast have been slower to prepay; for example, speeds in California have been weak despite low delinquency rates.
Exhibit 4. FHA discount prepayment speeds by state.
Voluntary prepayment speeds from July 2023–June 2024. 30-year fixed-rate loans with rate incentive below zero.
Source: Ginnie Mae, Santander US Capital Markets.
Discount VA speeds follow similar patterns as FHA, although states in the Southeast fare better (Exhibit 5). For example, Georgia is one of the fastest states and Florida rises slightly above the middle tier. Overall VA delinquency rates are lower compared to conventional, which suggests there may be a weaker relationship between delinquencies and housing turnover in VA loans. VA loans in Texas fall into the slowest prepayment bucket.
Exhibit 5. VA discount prepayment speeds by state.
Voluntary prepayment speeds from July 2023–June 2024. 30-year fixed-rate loans with rate incentive below zero.
Source: Ginnie Mae, Santander US Capital Markets.
Conventional loans across the South are prepaying faster than other regions (Exhibit 6). Florida jumps into the fastest tier, and Texas remains hot. Only Louisiana stays on the slower side. Many of the faster states in the Midwest and Northwest, like Wyoming, are still faster in conventional loans. The weakest prepayment speeds continue to come from states in the northeast, like New York, and along the west coast. The diverging prepayment behavior between conventional and government insured loans serves as a reminder that it isn’t always possible to infer Ginnie Mae speeds from conventional behavior.
Exhibit 6. Conventional discount prepayment speeds by state.
Voluntary prepayment speeds from July 2023–June 2024. 30-year fixed-rate loans with rate incentive below zero, owner-occupied, FICO>700, Orig. LTV≤80.
Source: Fannie Mae, Freddie Mac, Santander US Capital Markets.
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