Mortgage Delinquencies Predicted to Drop


One of the biggest credit ratings agencies in the world is predicting that U.S. mortgage delinquency rates will see a double digit decline in 2011. The positive forecast is thanks to an improving economy and a stabilizing housing market, as more homeowners get up to date on their payments.

TransUnion in its latest quarterly analysis of mortgage industry trends, reports that mortgage delinquency rates, which rose by 50% each year from 2006 to 2009, should fall in all 50 states by more than 10% in 2011 – a surprising number given the carnage in the mortgage market with foreclosures and shadow inventory clouding the sector in 2010.

According to the National Association of Realtors, the U.S. housing sector has suffered from approximately 4-5 million foreclosures since the start of the Great Recession. That number should continue to grow once major lenders resume foreclosure operations that were suspended after reports that many botched their foreclosure paperwork.

But better times may be just ahead for American homeowners – and to the banks that lend them money. The TransUnion report estimates that the mortgage delinquency rate will decline to 4.98% in 2011, from 6.21% at the end of this year. The credit ratings giant also estimates that the rate dropped by 3.5% from the second quarter to the third quarter of 2010. The total amount of U.S. home mortgage delinquencies peaked in July 2009, according to TransUnion.

Here are some other key statistics from the report:

•    Mortgage borrower delinquency rates in the third quarter of 2010 continued to be highest in Nevada (15.1%) and Florida (14.6%), while the lowest rates continued in North Dakota (1.5%), South Dakota (2.2%) and Nebraska (2.6%).

•    Ten states showed increases in delinquencies from the previous quarter, with Maine (4.7%), Kansas (3.2%) and West Virginia (3.1%) leading the pack.

•    Measures of later-stage mortgage delinquency, such as the proportion of delinquent borrowers who are 90 or 120 or more days past due, provide further positive news, as both showed larger decreases than in any quarter this year.

F.J. Guarrera, a vice president in TransUnion’s financial services business unit, points out the fragility of the delinquency metric though, citing the specter of fallout from resumption of foreclosure proceedings and a new round of adjustable rate mortgage resets, which tends to cause a spike in monthly mortgage payments.

“Couple those variables with a stubborn unemployment rate, and one can see how a positive three quarter trend might quickly abate,” he said.

Despite this, Guarrera is optimistic."This decline in mortgage delinquency rates, in tandem with a stabilization in housing prices in many areas of the country and record low interest rates for mortgage loans, are all positive signs that this industry is moving in the right direction, coming out of one of the worst recessions in recent memory.”

If TransUnion is right, a decline in delinquencies should lead to a subsequent rise in U.S. home prices. As neighborhoods stabilize, price declines should melt away, replaced by an increase for homes from owners who are on top of their mortgage payments.

That would be welcome news indeed to a reeling U.S. housing market, and to the U.S. economy overall. Across the board, homeowners, real estate agents, and lenders are all waving goodbye to 2010 with both hands – and welcoming 2011 with open arms.

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