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Rising Tide Of Mortgage Defaults In Kentucky, Vermont, And Nebraska: Navigating Challenges

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As the economy continues to navigate uncertain waters and inflation for everyday Americans worsens, a concerning trend has emerged in the Bluegrass State – a steady increase in residential mortgage defaults.

Kentucky, once hailed for its resilience, now finds itself grappling with a growing number of homeowners falling behind on their loan payments. 

Recent data paints a troubling picture for Kentucky’s housing sector. According to a report by the personal finance company WalletHub, the state ranks in the top 20 in the nation for the share of mortgages with payments more than 30 days past due.

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During the first three months of 2024, a staggering 1 in 11 home loans in Kentucky were in arrears, a 15% increase from the previous quarter.

Experts attribute this surge in mortgage defaults to a confluence of economic pressures weighing on Kentucky homeowners.

“If you are delinquent on mortgage debt, you typically have until the debt is 30 days past-due (meaning you have missed two payments) in order to get current. After that, the lender will report the delinquency to the credit bureaus, which will damage your credit score. Therefore, it’s important to try to get current on your debt as quickly as possible. If you are experiencing financial difficulty that prevents you from paying, ask your lender if they will allow temporary forbearance until you get back on your feet, which may prevent you from being reported as delinquent,” said Cassandra Happe, WalletHub Analyst.

The situation in Kentucky mirrors a broader national trend. The Mortgage Bankers Association’s National Delinquency Survey found that seasonally adjusted default rates rose 3.94% at the end of the first quarter across all loan types, including conventional, Federal Housing Administration, and Veterans Affairs mortgages.

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Increased foreclosure activity can exert downward pressure on home prices, as distressed properties flood the market. This, in turn, can erode the equity and wealth of homeowners who have managed to stay current on their mortgages, further exacerbating the financial strain on Kentucky families.

The housing crisis can also reverberate through the construction industry, as reduced demand for new homes and the uncertainty surrounding the market’s future can lead to a slowdown in residential development. This can have a cascading effect on employment and economic growth in related sectors.

As Kentucky grapples with the mounting challenge of mortgage defaults, policymakers, industry stakeholders, and community leaders must work together to devise comprehensive strategies to support homeowners and stabilize the housing market.

Yet, Kentucky is not alone.

Vermont is the state where mortgage debt delinquency is increasing the most. Around 24% more mortgages in the state were delinquent in Q1 2024 than in Q4 2023, the highest increase in the country. In total, Vermonters are delinquent on 7.1% of their mortgages, which is the 14th-highest delinquency rate.

Interestingly, in addition to having a big increase in mortgage delinquency recently, Vermont also ranks high when it comes to the share of people with credit accounts in distress, meaning they have been allowed to delay payments due to financial difficulty. This shows that residents are having trouble paying all different types of debt.

Nebraska had the second-highest increase in mortgage delinquency from Q4 2023 to Q1 2024, with residents falling behind on payments for nearly 23% more mortgages. Nebraskans only have the 28th-highest delinquency rate overall, though, at 6%.

Overall, Nebraska has a relatively weak state economy and some of the highest tax rates in the country, so those factors may contribute to Nebraska residents having trouble making their mortgage payments.

Mortgage delinquency in Rhode Island increased by nearly 20% between Q4 2023 and Q1 2024, which ranks third nationally. People in the state still only have the 32nd-highest delinquency rate overall, though, at 5.3%.

Rhode Island has a very low share of people who have been allowed to delay payments on their debts due to financial difficulty. This means that when many people in Rhode Island are late on their mortgage payments, their score will continually decrease, without any special provisions from their bank. Some Rhode Islanders may want to request “forbearance” or a “hardship program” in order to temporarily avoid payments being marked as late until their situation improves.

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