In its most recent Mortgage
Monitor, Black Knight Financial Services dug deeper into a topic it had
raised in an earlier edition, the seasonality of mortgage delinquencies. In its February Monitor the company looked specifically at the role of federal
income tax refunds in mortgage cures.
The analysis noted that those taxpayers who file in the first two weeks
of the tax season, that is by February 5, are those most likely to be expecting
a refund. They also, on average, receive
a larger refund than those who file later, by factors of 35 to 50 percent more than
mid-season and near-deadline filers.
this data, Black Knight says it is no coincidence that, based on past performance,
nearly 300,000 more delinquent borrowers can be expected to bring their
mortgages current in February and March than in other months, likely using
their tax refunds to do so. Further, this pattern is more pronounced in early
delinquencies where past due balances and fees are still relatively low and are
seen more frequently among FHA/VA borrowers "who
might be expected to have less cash reserves on hand and therefore be more
dependent upon the infusion of funds during tax refund season to pay down late
In the March the Monitor looks at the further impact
geographic and loan characteristics may have on seasonal delinquencies and
finds that, in addition to investor category, it varies by loan age, loan
vintage, and geography. The company first looked at average seasonal ratios
from 2011 to 2015, broken out by investor.
Consistent with the tax-return
explanation March has the lowest delinquency rate, typically 7 percent below
the rolling 12-month centered moving average.
FHA delinquencies fall 10 percent below that moving average in the
spring and have the most serious rise in delinquencies in the winter months, up
8 percent in January compared to 5 percent for all active mortgages.
is also a geographic component to seasonality. The two maps show the states and the seasonal
pull on their delinquency rates. A
number below 100 percent signifies a decline in delinquency rates from the
centered moving average (i.e. 90 percent indicates a 10 percent downward pull)
while a number above 100 percent indicates an increase. Black Knight notes that virtually all states
follow the same pattern, lower delinquencies in the spring, higher in the fall
and winter, but there is a much more profound impact in both seasons in the
central U.S. while coastal areas, especially the West Coast, see much smaller seasonal
Knight posits several possible causes for the differing impact of geography on
seasonality including home price and related down payment and reserve
requirements and income variations, average loan age, and mortgage product
mix. What they don't mention is
weather. Four of the five states with
the strongest seasonal variations are those that often suffer severe winter
weather while four of the five with the smallest swings have notably temperate
climates. Bad weather can increase
household costs for energy and cause job layoffs in construction and other
outdoor occupations. The data does make
clear that in the states with the lowest seasonal variation it is less than
half the impact as in those with the most.
market factors can also affect seasonality.
Black Knight gets very granular in Alaska, the state with the greatest
variability, showing the impact of the annual oil royalty payments received by
permanent Alaska residents as well as the crab fishing season.
final factors that impact seasonal delinquencies are the age of the mortgage
and the mortgage's vintage. On average,
there is a seasonal fluctuation of roughly 23 percent around the 12-month
moving average within the first two years of mortgage origination. However, that average of 23 percent blurs a
range by vintage of 15 to 32 percent. Mortgages
originated from 2006 to 2008 show very little seasonality compared to those
originated before and after those dates, perhaps because delinquencies in those
vintages are driven more by serious inabilities to make mortgage payments. This could be important Black Knight says,
because it may suggest that early seasonality or its lack could potentially be
a sign of eventual long-term performance.
also declines with age, on average by 30 percent from the first two years to
the fifth and sixty years of mortgage life.
The same decline is true with 30-day delinquency rates, suggesting
borrowers are less likely to become even moderately delinquent due to seasonal
factors the longer they hold and perform on their mortgage.