The nation’s mortgage delinquency rate will likely decline for the fifth consecutive year from an estimated 3.94% at yearend 2013 to 3.75% by the end of 2014.
Generally considered a precursor to foreclosure, the delinquency rate in 2014 is expected to reach its lowest level in five years that is consistent with a trend of increasing percentage declines that have seen occasional fluctuations in the recent past, according to TransUnion.
The national mortgage delinquency rate will continue its downward trend, while “a few obstacles in 2014”will keep it at above normal levels, says Tim Martin, group vice president of U.S. housing in TransUnion’s financial services business unit.
Primary reasons for the slowdown will be the pending rise in interest rates, “which may hinder home sales and block refinancing,” and foreclosure timelines that continue to expand in many states, “keeping longer vintage delinquencies in the system,” he notes.
Delinquency declines accelerated each year dropping 6.4% in 2010, 7.1% in 2011 and a little less than 15.1% in 2012 and are projected to decline another 23.4% in 2013.
It is, however, not easy to assess the effect of current improvements given that during the height of the mortgage crisis, the mortgage delinquency rate rose almost 50% in both 2008 and 2009.
The national ratio of mortgage borrowers 60 or more days past due is projected to decline 4.8% in 2014 reversing a trend of increasing percentage declines.
Since mortgage delinquencies dropped nearly 41% to about 4.1% in 3Q13, the subprime borrower delinquency rate—number of customers with VantageScore credit scores lower than 640 on a scale of 501-990—dropped only 15% from about 43% in 1Q10 to 36.6% in 3Q13.
Data is encouraging, Martin says.
Subprime delinquency rates mostly declined since the beginning of 2012 when low interest rates helped rebound home prices. These improvements gavemany subprime borrowers the option of refinancing or selling their way out of the delinquent mortgage “before the logjammed foreclosure process caught up to them,” he explains.
Meanwhile, the largest delinquency rate declines are expected in Nevada at 25.2%, Florida 15.3%, Georgia 11.7%, and Michigan and New Jersey both at 10.2%.
Housing market improvements largely depend on the four states most impacted by the housing crisis: Arizona, California, Florida and Nevada. The good news is that theycontinue to lead the recovery.
But there is a shift, he says.
Nevada and Florida remain at elevated levels but “should show above average improvement next year,” replacing California and Arizona as the states expected to see the biggest improvements in 2014.
Arizona and California will still have mortgage delinquency rates well below the national average, TransUnion notes.