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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 28 April 2025 F E A T U R E S T O R Y LENDERS NEED TO ADDRESS LOSS MITIGATION COSTS AMIDST A RISE IN NON-PERFORMING LOANS With larger economic factors impacting the nation's delinquency rate, servicers must adapt and keep ahead of the costs to service non-performing loans. B y B R I A N W E B S T E R W ith delinquencies at an all-time low, lenders that have retained servicing have enjoyed healthy returns on their portfolios, providing a needed boon to overall profitability as originations stall out in anticipation of further rate cuts. However, larger economic factors are impacting the delinquency rate, thus jeopardizing this vital revenue stream. Consider the unexpected wallop of Hurricane Helene in western North Carolina, where nearly 600 roads were closed, making repairs and rebuilds impossible and providing the kind of hopelessness that stokes foreclosures as exhausted homeowners walk away without obtaining assistance. Soon thereafter, Hurricane Milton and the tornadoes it spawned devastated many parts of Florida, some of which had also been severely damaged by Hurri- cane Helene. Earlier this year, wildfires in Southern California only added to the devastation wrought by severe weather events in the United States, with total eco- nomic losses estimated at $50 billion. With insurers pulling out of these two states in particular, there may be little incentive for homeowners to rebuild, thus potentially compounding possible foreclosures. Of course, natural disasters are but one factor that can influence the delin- quency rate. Rising prices on consumer goods will most certainly stretch many existing homeowners economically, and recent data shows that unemployment is on the rise, which is often a leading indicator for delinquencies. Given these unknowns and how expensive distressed servicing can be, lenders must seek ways to drive down the cost of servicing non-performing loans and build a sustainable model should the situation worsen. The Composition of Loans in Delinquency Is Changing A ccording to the Mortgage Bank- ers Association's (MBA) National Delinquency Survey (NDS) for Q4 2024, the delinquency rate for the quarter increased to 3.98%, up six basis points (bps) from Q3 and 10 bps year over year. As Marina Walsh, MBA's VP of Industry Analysis, noted: "Although mortgage delinquencies rose only 10 basis points in the fourth quarter of 2024 compared to one year ago, the composition of the delinquencies changed. Conventional delinquencies remain near historical lows, but FHA and VA delinquencies are increasing at a fast- er pace. By the end of the fourth quarter, the spread between the FHA and conven- tional delinquency rates reached 841 basis points, while the VA and conventional spread was 208 basis points. Government loans are also rolling to later stages of delinquency. Compared to one year ago, the seriously delinquent rate rose 70 basis points for FHA loans and 57 basis points for VA loans, but only two basis points for conventional loans." It is worth pointing out that the previous significant upward trend in foreclosures began nearly four years before the peak in mid-2009. Thus, the dramatic shifts in delinquencies in the government lending segment combined with rising foreclosure rates could be a harbinger of what is to come. Given these increases, it is un- surprising that the MBA's Quarterly Mortgage Bankers Performance Report for Q3 2024 showed a reversal in net ser- vicing financial income, which dropped to a loss of $25 per loan versus a gain of $69 per loan in Q2. Increased prepay- B R I A N W E B S T E R is President of NotaryCam, a Stewart- owned company and pioneering provider of remote online notari- zation technology for real estate and legal transactions. He may be reached by email at brian.webster@notarycom.com.