Delinquency Improvements Expected to Slow

While mortgage delinquency rates arernexpected to continue their decline to more normal levels next year, multiplernfactors will slow that drop from the pace seen in recent years.  TransUnion projected today that the mortgagerndelinquency rate will decline from its expected year-end 2013 level of 3.94rnpercent to 3.75 percent by the end of next year, a far shallower decline thanrnhas previously been the case.  At thernsame time the credit reporting company said credit card delinquencies will risernover the next 12 months.</p

While 2014 is expected to be the<bfifth straight year in which mortgage delinquencies have fallen, it would bernthe first year in which the negative change was smaller than the yearrnbefore.  The year-over-year drop inrndelinquencies of 60 days or more accelerated from 6.40 percent in 2010 to 7.14rnpercent in 2011, 15.05 percent in 2012 and delinquencies are expected to berndown 23.43 percent this year. These improvements started after two consecutive years,rn2008 and 2009, of 50 percent increases in the 60 day rate. </p

TransUnion’s group vice president ofrnU.S. Housing Tim Martin said the company sees a few obstacles that will slowrnthe delinquency rate’s return to more normal levels. “The primary reasonrnfor the slowdown will be the pending rise in interest rates, which may hinderrnhome sales while also blocking refinancing as an exit strategy for somernmortgage borrowers. Additionally, foreclosure timelines continue to expand inrnmany states, keeping longer vintage delinquencies in the system.”</p

The national delinquency rate peakedrnat 6.93 percent in the first quarter of 2010 and since then has dropped everyrnquarter except the last two in 2011.  Whilerndelinquencies are down nearly 41 percent from that peak to 4.09 percent in thernthird quarter of 2013, subprime delinquencies have dropped only about 15rnpercent from the peak of 42.96 percent in Q1 2010 to 36.56 percent at the endrnof the last quarter.  </p

Both the national delinquency andrnthe subprime delinquency levels remain well above the earliest data TransUnionrnhas available, respective rates of 2.23 percent and 20.52 percent in the secondrnquarter of 2007</p

Martin said, “The encouragingrnstory surrounding subprime delinquency rates is that most of the declinernobserved has occurred since the beginning of 2012. As interest rates stayedrnlow, house prices started to rebound — and that gave many subprime borrowersrnthe option of refinancing or selling their way out of the delinquent mortgagernbefore the logjammed foreclosure process caught up to them.” </p

TransUnion is projecting the largestrnmortgage delinquency rate declines to happen in Nevada (-25.17%), Florida (-15.31%),rnGeorgia (-11.74%), Michigan (-10.18%) and New Jersey (-10.17%). The biggestrnpercentage increases are expected in North Dakota (+47.72%), Montana (+12.05%),rnAlaska (+11.70%), Hawaii (+7.35%) and Texas (+7.33%).</p

Martin noted that the four statesrnthat were hit the hardest by mortgage delinquencies and foreclosures have alsornshown the greatest improvement.  Californiarnand Arizona rebounded substantially this year but now there appears to be arnshift with Nevada and Florida expected to see the biggest improvements in 2014.rnThese four states played a major role in elevating the U.S. mortgagerndelinquency rate by more than 200% between 2007 and the start ofrn2010. While Arizona and California now have mortgage delinquency ratesrnwell below the national average, Florida and Nevada remain at elevated levelsrnbut, as such, should show above average improvement next year.”</p

Credit card delinquency rates (thernratio of bankcard borrowers 90 days or more delinquent on one or more of theirrncredit cards) are expected to rise nearly 10% from 1.51% in Q4 2013 to 1.66% inrnQ4 2014. Even with that increase, the card delinquency rate would remainrnfar below average historical levels. Between 2007 and 2012, the creditrncard delinquency rate has averaged 2.38% during the fourth quarter. </p

“The credit card delinquencyrnrate should remain relatively low next year,” said Steve Chaouki, arnco-author of several credit lending studies and group vice president inrnTransUnion’s financial services business unit. “Delinquency has remainedrnnear all-time lows post-recession as lending to the subprime population wasrnmuted.”

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