While mortgage delinquency rates are
expected to continue their decline to more normal levels next year, multiple
factors will slow that drop from the pace seen in recent years. TransUnion projected today that the mortgage
delinquency rate will decline from its expected year-end 2013 level of 3.94
percent to 3.75 percent by the end of next year, a far shallower decline than
has previously been the case. At the
same time the credit reporting company said credit card delinquencies will rise
over the next 12 months.
While 2014 is expected to be the
fifth straight year in which mortgage delinquencies have fallen, it would be
the first year in which the negative change was smaller than the year
before. The year-over-year drop in
delinquencies of 60 days or more accelerated from 6.40 percent in 2010 to 7.14
percent in 2011, 15.05 percent in 2012 and delinquencies are expected to be
down 23.43 percent this year. These improvements started after two consecutive years,
2008 and 2009, of 50 percent increases in the 60 day rate.
TransUnion's group vice president of
U.S. Housing Tim Martin said the company sees a few obstacles that will slow
the delinquency rate's return to more normal levels. "The primary reason
for the slowdown will be the pending rise in interest rates, which may hinder
home sales while also blocking refinancing as an exit strategy for some
mortgage borrowers. Additionally, foreclosure timelines continue to expand in
many states, keeping longer vintage delinquencies in the system."
The national delinquency rate peaked
at 6.93 percent in the first quarter of 2010 and since then has dropped every
quarter except the last two in 2011. While
delinquencies are down nearly 41 percent from that peak to 4.09 percent in the
third quarter of 2013, subprime delinquencies have dropped only about 15
percent from the peak of 42.96 percent in Q1 2010 to 36.56 percent at the end
of the last quarter.
Both the national delinquency and
the subprime delinquency levels remain well above the earliest data TransUnion
has available, respective rates of 2.23 percent and 20.52 percent in the second
quarter of 2007
Martin said, "The encouraging
story surrounding subprime delinquency rates is that most of the decline
observed has occurred since the beginning of 2012. As interest rates stayed
low, house prices started to rebound -- and that gave many subprime borrowers
the option of refinancing or selling their way out of the delinquent mortgage
before the logjammed foreclosure process caught up to them."
TransUnion is projecting the largest
mortgage delinquency rate declines to happen in Nevada (-25.17%), Florida (-15.31%),
Georgia (-11.74%), Michigan (-10.18%) and New Jersey (-10.17%). The biggest
percentage increases are expected in North Dakota (+47.72%), Montana (+12.05%),
Alaska (+11.70%), Hawaii (+7.35%) and Texas (+7.33%).
Martin noted that the four states
that were hit the hardest by mortgage delinquencies and foreclosures have also
shown the greatest improvement. California
and Arizona rebounded substantially this year but now there appears to be a
shift with Nevada and Florida expected to see the biggest improvements in 2014.
These four states played a major role in elevating the U.S. mortgage
delinquency rate by more than 200% between 2007 and the start of
2010. While Arizona and California now have mortgage delinquency rates
well below the national average, Florida and Nevada remain at elevated levels
but, as such, should show above average improvement next year."
Credit card delinquency rates (the
ratio of bankcard borrowers 90 days or more delinquent on one or more of their
credit cards) are expected to rise nearly 10% from 1.51% in Q4 2013 to 1.66% in
Q4 2014. Even with that increase, the card delinquency rate would remain
far below average historical levels. Between 2007 and 2012, the credit
card delinquency rate has averaged 2.38% during the fourth quarter.
"The credit card delinquency
rate should remain relatively low next year," said Steve Chaouki, a
co-author of several credit lending studies and group vice president in
TransUnion's financial services business unit. "Delinquency has remained
near all-time lows post-recession as lending to the subprime population was