JACKSONVILLE, Fla. – Feb. 7, 201 7– The Mortgage Monitor Report from Black Knight Financial Services for December 2016 examined Internal Revenue Service (IRS) tax filing statistics in conjunction with mortgage performance data.
According to Black Knight Data & Analytics Executive Vice President Ben Graboske, there has historically been a distinct correlation between income tax refund disbursements and delinquent mortgages becoming current.
"Looking at IRS filing statistics, we see that nearly one in five Americans file their returns within the first two weeks of tax season, and over 40 percent had completed their taxes by the first week in March," says Graboske. "Unsurprisingly, incentive played a big role in this timing: not only were Americans who filed early more likely to receive a refund than those filing later, but they also received larger refunds on average."
Graboske says that "mortgage cures" – delinquent borrowers who bring themselves back to current status – spike in February and March as well, "suggesting that some portion of Americans are using their tax refunds to make past-due payments on their mortgages."
According to Graboske, nearly 300,000 borrowers in recent years, on average, make their loans current in February and March alone, on top of normal cure volumes for the typical month. "All things being equal, there's no reason to expect this tax season to be any different," he says.
In most cases, the homeowners who catch up have not been delinquent very long, and most are only a few months behind on their mortgage payment.
"This makes sense, in that a tax refund may be sufficient to pay a few months of past-due mortgage payments, but is likely not enough to bring a homeowner out of severe delinquency," Graboske says. "Likewise, the most pronounced impact was seen among FHA/VA borrowers, who might be expected to have less cash reserves on hand, and therefore more dependent" on their tax return money.
"FHA/VA borrowers see loan cures increase by an average of 40 percent in February and March – as compared to just 26 percent for GSE loans," he adds. "In fact, FHA/VA loans see the most seasonal fluctuation in delinquency rates overall … they tend to struggle more when the funds burn off late in the year and money becomes tight around the holiday spending season."
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