TransUnion data show a trend of progressive, six-quarter improvement in the performance of borrowers 60 days or more past due reversed in the third quarter, increasing the national mortgage delinquency rate from 5.82% in the previous quarter to 5.88%.
While the increase breaks a pattern initiated at yearend 2009, the year-over-year delinquency rate among these borrowers decreased 8.70% from 6.44%.
Findings worry insiders whose expectation was to see the slow, but steady improvement trend continue in 2011.
Reasons for these changes vary from local to global. According to Tim Martin, Trans Union's group VP of housing and financial services unit, "relatively more conservative lending policies" combined with some stabilization in home values and employment rates should have had a positive effect on the overall delinquency rate."
But apparently, the counter effect of certain macro economic developments has gotten in the way, disrupting the improvements seen for six quarters in a row.
Martin maintains that during the quarter customers were hit with "several unanticipated shocks" such as the U.S. credit rating downgrade, stock price declines, European debt concerns, unemployment and downward pressure in housing prices that diminish customer confidence.
Consequently especially "underwater" borrowers, whose home values are much lower than their mortgage debt, may be tempted to default or unable to pay.
In the short run, says Rick Sharga, executive VP of Carrington Mortgage Holdings, LLC, the market will play its course despite government efforts to intervene. For example, the new Home Affordable Refinance Program "might have a marginal effect on encouraging" borrowers from missing payments on loans that are re-setting in the near term so they have a chance to refinance because that pool of borrowers is not large enough in size "to meaningfully change the delinquency rates."
In addition, he said, the new refinancing guidelines require that borrowers are current on their loans and have not been delinquent in the last 12 months, effectively eliminating "anyone who's already 60 days or more delinquent from participating for at least the next year."
TransUnion analysts said they expect the combined effect of these micro and macro economic factors to be temporary. In their view mortgage delinquency rates will start to move downward again in 2012 after one or two quarters of "slightly elevated nonpayment rates."
It is important to note however, that not all markets have responded the same way to the economic uncertainty as up to 10 states, and the District of Columbia did not report increases in the delinquency rate.
Metropolitan statistical areas on the other hand experienced "a significant difference," with 64% of MSAs reporting increases in delinquency rates during the third quarter up from only 21% in the previous quarter and 32% in the first quarter of 2011.
TransUnion said it is conducting a series of ongoing quarterly analysis of how U.S. customers are managing their mortgage, cards and auto credit based on economic assumptions that include gross state product, real estate values, unemployment rates and consumer sentiment.
