Softening Mortgage Rates Drive Increase in Prepayments
In October, the softening mortgage rates led to a surge in prepayments, reaching their highest level in three and a half years, according to Andy Walden, head of mortgage and housing market research at ICE.
Walden explained, “This trend was mainly fueled by homeowners who had purchased properties at higher rates in recent years taking advantage of the opportunity to reduce their monthly payments.”
Despite the rise in prepayments, the overall mortgage performance remained strong. The national delinquency rate, which includes loans that are 30 or more days past due but not in foreclosure, decreased by 7 basis points from September to 3.34%. This is 11 basis points lower than the previous year and 53 basis points below the level in October 2019, before the onset of the COVID-19 pandemic.
Both early-stage (30-day) and serious (90-day-plus) delinquencies saw improvements in October, as per the latest data release.
Foreclosure activity also saw a decline month over month, with total U.S. foreclosure starts dropping by 9.84% to 38,000. However, compared to the previous year, foreclosure starts were up by 32.4%.
The pre-sale inventory of properties in foreclosure increased by 4,000 from September to 226,000, marking a 37,000 rise from October 2024. Notably, Federal Housing Administration (FHA) foreclosures surged by 50% year over year.
Andy Walden noted, “Despite the slight increase in foreclosure activity, the levels are still historically low. The rise can be attributed to an uptick in FHA foreclosures and the resumption of VA foreclosures following last year’s moratorium.”