What Are 60-Plus Delinquencies?

The 60-plus delinquency rate is a metric that is typically used for the housing industry to measure the number of mortgage loans that are more than 60 days past due on their monthly payments. A 60-plus delinquency rate is often expressed as a percentage of a group of loans that have been underwritten within a specified time period, such as one year.

Understanding 60-Plus Delinquencies

The 60-plus delinquency metric can also be used for auto loans and credit cards. The 60-plus delinquency rate is helpful because it shows creditors and lenders whether consumers are falling behind on their payments and if they’re likely to default on their loans.

The 60-plus rate may be split into prime loans and subprime loans. Subprime loans are for borrowers with a poor credit history. The 60-plus delinquency rate on subprime loans is typically higher than for prime loans. Oftentimes, 60-plus rates are published separately for fixed-rate loans versus adjustable-rate loans, which have a variable rate and might have the option to reset to a fixed rate later in the term.

Monitoring the 60-day rates, as well as other delinquency rates for borrowers, can provide enormous insight into the financial health of consumers in an economy. If economic conditions are favorable, meaning steady economic growth, then delinquency rates tend to fall.

Conversely, as economic conditions deteriorate, unemployment tends to rise as consumers are laid off from their jobs. With less income, it becomes more difficult for consumers to make their mortgage payments, leading to a spike in delinquencies throughout the economy. 

Also, banks and mortgage lenders track delinquency rates since any interruption in mortgage payments represents a reduction in revenue. If delinquencies persist in a poorly performing economy, bank losses can rise as fewer mortgage payments are received, which leads to fewer new loans being issued. Fewer loans being issued to consumers and businesses can exacerbate the already-poor conditions within an economy, making a recovery more challenging.

60-Plus Delinquencies vs. Foreclosure

The 60-plus delinquency rate is often added to another negative event measure: the foreclosure rate for the same group of loans. The two metrics provide a cumulative measure of the individual mortgages that are either not being paid or being paid behind schedule.

Since 60-plus delinquencies are less than 90 days, the loans have yet to enter the foreclosure process. Foreclosure is the legal process in which a bank seizes a home due to default or nonpayment of the mortgage payments by the borrower. Although each lender may differ, typically 90 to 120 days past due, a home loan enters the pre-foreclosure process.

When a borrower is 90 days past due, the lender usually files a notice of default, which is a public notice submitted to the local court stating that the borrower’s mortgage loan is in default. Borrowers can still try to work with their bank to modify the loan at this point in the process.

If the loan payments are still not made beyond the 90- to 120-day period, then the foreclosure process moves forward. The bank will eventually seize the home, and an auction will be held to sell the home to another buyer.

Mortgage-Backed Securities (MBS)

Mortgage loans are sometimes grouped into a pool of loans that make up mortgage-backed securities (MBS). An MBS is sold to investors as a fund in which they earn interest from the mortgage loans. Unfortunately, investors often have no idea whether the loans that comprise the MBS are current—meaning that the borrowers are not behind on their payments.

If the delinquency rate on past-due mortgages rises beyond a certain level, then the mortgage-backed security may experience a shortfall of cash, leading to difficulty making the interest payments to investors. As a result, a re-pricing of the loan assets can occur, resulting in some investors losing a portion or most of their invested capital.

Special Considerations

Homeowners are usually at risk of losing their homes in an economic downturn. But certain protections were put in place to help homeowners affected by the COVID-19 pandemic. In 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included a provision that allowed borrowers to skip their mortgage payments for up to a year—a process called forbearance. It also provided a moratorium on evictions.

The moratorium on foreclosures and evictions for enterprise-backed mortgages, including those backed by the U.S. Department of Agriculture (USDA) and the Federal Housing Administration (FHA), has been extended several times. The forbearance expires on Sept. 30, 2021.

The U.S. Centers for Disease Control and Prevention (CDC) announced a temporary halt on evictions in counties with substantial or high levels of community transmission of COVID-19. The mandate was set to expire on Oct. 3, 2021, but a U.S. Supreme Court ruling ended this protection on Aug. 26, 2021, by striking down the moratorium.

Below are some of the steps and key portions of your rights under the forbearance program that borrowers can opt into if they’re delinquent on their mortgage payments.

Call Your Lender

Borrowers must contact their lender or bank that issued the mortgage loan and request forbearance. Borrowers mustn’t stop their mortgage payments until they are approved for forbearance from the lender.

You Still Owe the Payments

If approved, forbearance will cause any of your skipped payments to be added to the end of the loan’s term, meaning that the length of the loan will increase. In other words, borrowers still need to make those payments, but instead of making the payments in the next few months, those payments will be added to the end of the payment schedule for the mortgage.

No Penalties

The good news is that there are no penalties for delaying the payments as a result of forbearance. Also, the missed payments won’t hurt your credit score, which is a numeric representation of your creditworthiness and ability to pay back your debt.

Qualifications

Not all mortgage loans qualify. The program typically limits approval to mortgages that are backed or funded by government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac. As a result, it’s important to contact your lender to see what type of mortgage you have. As mentioned above, the emergency measures signed during the COVID-19 pandemic affect mortgages backed by agencies such as the USDA and the FHA.

Example of 60-day Mortgage Delinquencies

The Mortgage Bankers Association (MBA) tracks mortgage delinquency rates for the U.S. economy. The mortgage delinquency rate peaked at 8.22% in the second quarter (Q2) of 2020 but fell to 6.38% within three quarters as of the first quarter (Q1) of 2021. This was the sharpest decline ever seen in such a short period of time. For Q1 2021, the earliest stage delinquencies—the 30-day and 60-day delinquencies combined—dropped to the lowest levels since the inception of the survey in 1979.

FHA-backed mortgage loans had the highest delinquency rate in Q1 2021 of all loan types, at 14.67%. The report notes that while many areas saw improvement from their mid-pandemic highs, delinquency rates as a whole are still higher than they were pre-pandemic.

What Is a 5/1 Hybrid Adjustable-Rate Mortgage (5/1 ARM)?

A 5/1 hybrid adjustable-rate mortgage (5/1 ARM) begins with an initial five-year fixed interest rate period, followed by a rate that adjusts on an annual basis. The “5” in the term refers to the number of years with a fixed rate, and the “1” refers to how often the rate adjusts after that (once per year). As such, monthly payments can go up—sometimes dramatically—after five years.

How a Hybrid Adjustable-Rate Mortgage (Such as a 5/1 Hybrid ARM) Works

The 5/1 hybrid ARM may be the most popular type of adjustable-rate mortgage, but it’s not the only option. There are 3/1, 7/1, and 10/1 ARMs as well. These loans offer an introductory fixed rate for three, seven, or 10 years, respectively, after which they adjust annually.

Also known as a five-year fixed-period ARM or a five-year ARM, this mortgage features an interest rate that adjusts according to an index plus a margin. Hybrid ARMs are very popular with consumers, as they may feature an initial interest rate significantly lower than a traditional fixed-rate mortgage. Most lenders offer at least one version of such hybrid ARMs; of these loans, the 5/1 hybrid ARM is especially popular.

Other ARM structures exist, such as the 5/5 and 5/6 ARMs, which also feature a five-year introductory period followed by a rate adjustment every five years or every six months, respectively. Notably, 15/15 ARMs adjust once after 15 years and then remain fixed for the remainder of the loan. Less common are 2/28 and 3/27 ARMs. With the former, the fixed interest rate applies for only the first two years, followed by 28 years of adjustable rates; with the latter, the fixed rate is for three years, with adjustments in each of the following 27 years. Some of these loans adjust every six months rather than annually.

Example of a 5/1 Hybrid ARM

Interest rates change based on their marginal rates when ARMs adjust along with the indexes to which they’re tied. If a 5/1 hybrid ARM has a 3% margin and the index is 3%, then it adjusts to 6%.

But the extent to which the fully indexed interest rate on a 5/1 hybrid ARM can adjust is often limited by an interest rate cap structure. The fully indexed interest rate can be tied to several different indexes, and while this number varies, the margin is fixed for the life of the loan.

A borrower can save a significant sum on their monthly payments with a 5/1 hybrid ARM. Assuming a home purchase price of $300,000 with a 20% down payment ($60,000), a borrower with very good/excellent credit can save 50 to 150 basis points on a loan and more than $100 per month in payments on their $240,000 loan. Of course, that rate could rise, so borrowers should anticipate a rise in their monthly payment, be prepared to sell their home when their rate goes up, or be ready to refinance.

Advantages and Disadvantages of a 5/1 Hybrid ARM

In most cases, ARMs offer lower introductory rates than traditional mortgages with fixed interest rates. These loans can be ideal for buyers who plan to live in their homes for only a short period of time and sell before the end of the introductory period. The 5/1 hybrid ARM also works well for buyers who plan to refinance before the introductory rate expires. That said, hybrid ARMs like the 5/1 tend to have a higher interest rate than standard ARMs.

There’s also a chance that the interest rate might decrease, lowering the borrower’s monthly payments when it adjusts. But in many cases, the rate will rise, increasing the borrower’s monthly payments.

If a borrower takes out an ARM with the intention of getting out of the mortgage by selling or refinancing before the rate resets, then personal finances or market forces might trap them in the loan, potentially subjecting them to a rate hike that they can’t afford. Consumers considering an ARM should educate themselves on how they work.

5/1 Hybrid ARM vs. Fixed-Rate Mortgage

A 5/1 hybrid ARM may be a good mortgage option for some homebuyers. But for others, a fixed-rate mortgage may be more appropriate. A fixed-rate mortgage has one set interest rate for the life of the loan. The rate is not tied to an underlying benchmark or index rate and doesn’t change; the interest rate charged on the first payment is the same interest that applies to the final payment.

A fixed-rate mortgage could yield advantages for a certain type of homebuyer. If you’re interested in predictability and stability with mortgage rates, for example, then you might lean toward a fixed-rate loan instead of a 5/1 hybrid ARM. Comparing them side by side can make it easier to decide on a mortgage option.