Banks Report $5B In Non-Accrual HELOCs As House Prices Plummet

U.S. Banks Residential - Two Year Historical [Q3 2022]
U.S. Banks Residential – Two Year Historical

Overall residential mortgage loans appear to have continually improved in performance over the past two years.

Still, banks are holding tens of billions of dollars in distressed residential paper, with some small upticks in certain non-performing categories. Some of which may certainly be driven by crashing house values, and the evaporation of home buyers in the market.

Of special note are the almost $5B in non-performing HELOCs that banks have now classified as non-accrual stage loans.

That pool is more than 5x as large as the current pool of REOs on banks books.

Let’s dive into the latest bank data from Q3 to see exactly what is going on…

$18B First Position Residential Mortgages Fall Into Non-Accrual Stage

There are currently just under $18B in first mortgages on 1-4 family properties which have been classified “non-accrual” by lenders. This figure is down by around $3B from Q2 2022, and the same from Q1.

There are also over $15B in 90 day plus late loans, which have not yet been moved to the non-accrual stage.

Following this is around $13.5B in newly delinquent residential first position mortgages in the 30 to 89 days late stage; a slight increase over the previous quarter.

Residential REOs

Approximately 698 banks have reported that they were holding $818M in residential REO at the end of the third quarter of this year. This is another increase from the previous quarter, reversing the previous trend.

Still, this is just a small portion of the total volume of distressed residential loans being reported for this quarter.

It still does not appear that inflation, soaring interest rates, or the drop off in home sales activity has yet created any giant tsunami of defaults in this space, though there are many factors which could increase distress in the months ahead.

Non-Performing Residential Loans

U.S. Banks Residential Current Data Chart [Q3 2022]
U.S. Banks Residential – Q3 2022

The bulk of non-performing residential mortgage loans continue to sit in the nonaccrual stage with almost as many 90 day late and newly defaulting loans coming behind that.

As of Q3 the breakdown of non-performing first liens being reported includes:

  • $13.5B in 30-89 day late loans
  • $15B in 90 day plus late and still accruing loans
  • $18B in non-accrual loans

Uncover the 3,000 plus banks holding these non-performing loans inside BankProspector now.

Junior Liens

At the end of Q3 2022,  there were close to $5B in nonaccrual revolving lines of credit. There was also an increase in newly defaulting 30-89 day late HELOCs behind those.

Defaults on revolving credit lines remain higher than those on fixed second mortgage liens.

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

Looking Ahead

Overall, the data from the third quarter suggests that the residential loan market may be getting healthier, with the least non-performing loans and REO we’ve seen in two years.

That may change as house prices and sales slow. Fannie Mae says that home buyer and seller confidence has fallen to a new record low, with only 16% of consumers believing it is a good time to buy a home.

Sellers are also getting a wake up call with over 40% saying it is a bad time to sell a home. Yet, with Bloomberg reporting house prices falling the fastest ever, many more may question the sense in continuing to pay the mortgages on their fast depreciating homes. Fannie Mae believes the distress in the housing market may trigger a new recession and weigh down the entire economy.

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

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