Banks Report $47B in Non-Performing Residential Loans in Q2 2022

While the overall pool of non-performing residential mortgage loans appears to have declined since at least Q4 2021, banks still hold almost $50B in distressed residential paper.

For Q2 2022, banks reported they were holding around $47B in 30 day plus late and nonaccrual stage first lien residential mortgages, plus another $5B in delinquent lines of credit on 1-4 family residences.

While there have been plenty of rumors of distress and a new correction, or economic meltdown, that does not seem to have shown up in the residential loan market yet. In fact, this space appears to have been continuing to get healthier.

Let’s dive into the latest bank data from Q2…

$21B First Position Residential Mortgages Fall Into Non-Accrual Stage

U.S. Residential Loans and REO Chart [Q2 2022]
U.S. Banks Residential – Two Year Historical

There are currently just over $19B in first mortgages on 1-4 family properties classified as “non-accrual” by lenders, down by around $3B from Q1 2022.

Following this are over $16B in 90 day plus late loans, which have not yet been classified as non-accrual stage loans.

Just under $13B in newly delinquent residential first position mortgages in the 30 to 89 days late stage are in the pipeline, the lowest level we’ve seen in at least the past two years.

Residential REOs

748 banks have reported holding $786M in residential REO at the end of the second quarter of this year, down by around $2M from Q1, reversing recent rising trends in previous quarters.

This is just around 1% of the total volume of distressed residential loans being reported for this quarter.

It does not appear that inflation or other issues have yet impacted consumers and banks in terms of REO. Ongoing high demand for residential real estate may also see any new REOs quickly absorbed by the market.

Non-Performing Residential Loans

U.S. Residential Loans & REO Chart - Current [Q2 2022]
U.S. Banks Residential – Q2 2022

The bulk of non-performing loans now sits in the non-accrual stage, a shift from the 90 day plus late stage of default among first position notes we saw in the previous quarter; a situation even fewer borrowers are ever able to recover from.

As of Q2, the breakdown of non-performing first liens being reported includes:

  • $12.9B in 30-89 day late loans
  • $16.4B in 90 day plus late and still accruing loans
  • $19B in non-accrual loans

Uncover the 4,600 plus banks holding these non-performing loans inside BankProspector now.

Junior Liens

As of the end of Q2 2022, there were still close to $5B in nonaccrual revolving lines of credit. Over $1B more 30-90+ day late lines of credit are following behind those.

Defaults on revolving credit lines are far higher than those on fixed second mortgages.

Dive into the BankProspector dashboard to find out which banks are reporting the most distressed residential junior lien loans and HELOCS.

Looking Ahead

Data from the second quarter suggests that the residential loan market is only getting healthier. This comes right on the heels of new house price growth records being set in early 2022. That may change as house prices and sales slow. Though, that performance data wouldn’t show up for another couple of quarters.

Still, with around $50B in distressed loans on banks’ books, there seems to be lots of potential and emerging opportunities for investors, though perhaps more so for note investors than those hungry for REO deals.

It may take another couple of quarters of data to reveal the extent of the impact of the new recession on residential mortgage debt performance and the housing market.

Log in now to see which banks are currently holding the most distressed loan notes…

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