Banks Holding Over $60B In Non-Performing Residential First Mortgages in Q4 2021

While the total volume of non-performing residential mortgage loans only rose slightly in the final quarter of 2021, there is still a substantial pool of distressed notes sitting on banks’ books.  

A hot housing market in 2021, along with trailing foreclosure and eviction moratoriums certainly helped to subdue a crisis, though there are still enough non-performing loans to soak up the tens of billions in capital seeking assets in this space. 

Let’s dive into the latest bank data from Q4…

$22B First Position Residential Mortgages Fall Into Non-Accrual Stage

U.S. Residential Loans and REO Chart [Q4 2021]

There are now over $22B in first mortgages on 1-4 family properties which have been classified “non-accrual” by lenders. This is up slightly from Q3 last year. 

This is aside from over $23.2B in 90 day plus late loans, which have not yet been reclassified as non-accrual loans.

Behind these are another $15.2B in newly delinquent and defaulted residential first position mortgages in the 30 to 89 days late category. This figure is several billion higher than in the previous quarter, with a total of close to $60B non-performing first lien loans altogether.

Residential REOs

Approximately 860 banks have reported that they were holding $779M in residential REO at the end of the fourth quarter – a $6M increase from Q3. 

That is just a small slice of the entire pool of distressed loans being reported as we moved into 2022.

As the backlog of eviction and foreclosure cases begin to be processed and potentially accelerate, banks are more likely to seize properties as REO, and look to profit from reselling them. 

Non-Performing Residential Loans

U.S. Residential Loans & REO Chart - Current [Q4 2021]

As with most of the year, the majority of non-performing loans remain in the 90 day plus late stage of default among first position notes, a situation few borrowers may recover from. 

As of Q4 the breakdown of non-performing first liens being reported includes:

  • $15.2B in 30-89 day late loans
  • $23.2B in 90 day plus late and still accruing loans
  • $22B in non-accrual loans

Discover the 4,700 plus banks holding these non-performing loans inside BankProspector now.

Junior Liens

As of the beginning of Q1 2022 there were still more than $5.3B in nonaccrual revolving lines of credit. Over $1B more 30-89 day late lines of credit are coming behind those. 

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

Looking Ahead

The total value of non-performing 1-4 family mortgages seems to have ticked up slightly in the final quarter of 2021. With close to $66B in distressed loans on banks’ books there appear to be plenty of potential and upcoming opportunities for investors. 

Capital for investing in the Single Family Rental (SFR) space appears abundant, with Globe St. reporting at least $50B in investable capital seeking a place to be put to work in this asset class alone. 

Even veteran investors have been stunned and pleasantly surprised at just how high property prices and rents have gone up. This may help mitigate any dramatic over-supply of distressed loans and REOs. It is also creating fast returns for those who can flip these properties and notes. 

How things go from here may depend a lot on whether home prices continue to grow so fast, or if signs of slowing in some prime markets spreads.

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

Leave a Comment