The Black Knight Financial Services Mortgage Monitor

The Black Knight Financial Services Mortgage Monitor is a monthly report that provides delinquency and foreclosure data. Mortgage originators use this data to benchmark their own originations.

Black Knight Financial Services—formerly known as Lender Processing Services—is a vendor for mortgage originators. It handles mortgage processing and default management outsourcing. As a result, it comes across a wealth of top-down mortgage information that many professionals and analysts use to help make strategic decisions.

Mortgage delinquencies tick up 6.08%

90-day mortgage delinquencies tick up to 6.08% in November

In general, mortgage delinquencies are falling as home prices rise and the foreclosure pipeline clears. While 6.1% seems low compared to the peak of 10%, the normal level before the housing bubble was between 4% and 5%. Better economic times are helping lower delinquencies, but we still have some work to do clearing the foreclosure pipeline.

Note that Ocwen’s (OCN) recent issues with the regulators has put servicers on notice that they’ll be scrutinized closely. We’ll see if servicers pursue more modifications when a foreclosure would be in the best interest of the lender as a way to appease the government.

Declining delinquencies are good for non-agency REITs

Non-agency real estate investment trusts (or REITs) such as PennyMac Mortgage Investment Trust (PMT), Two Harbors Investment (TWO), and Redwood Trust (RWT) take credit risks. In contrast, agency REITs that invest in government-guaranteed or government-supported mortgages—such as Annaly Capital Management (NLY) and American Capital Agency (AGNC)—don’t take credit risk.

The economic backdrop favors the non-agency REITs right now. A combination of a better economy, skewed risk to the downside in interest rates, and increasing prepayment speeds favor taking credit risk over interest rate risk.

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