1.7 Million Long-Term Delinquent Mortgages Weigh Rates Down

Regardless of vintage, up to 1.7 million loans to borrowers who have been delinquent for a very long time are keeping the national mortgage loan delinquency rate above “normal” at over 5%, according to TransUnion.

Due to one-year-or-longer delinquencies the national delinquency rate is significantly higher than the “normal” delinquency rate range of roughly 1.5%, Tim Martin, TransUnion group vice president of U.S. housing, financial services unit, told this publication. (“Normal” is calculated based on data from all U.S. mortgages originated between 1999 and 2007.)

TransUnion data show the national delinquency rate would fall to 2.5% if borrowers who have not made a mortgage payment in over a year were taken out of the calculation, Martin said, which is much closer to the 1.5% “normal.”

As of the third quarter—the latest actual data available—mortgage delinquencies have dropped 21% to 5.41%.

The rate is lower compared to its peak of 6.89% in 4Q 2009 when after soaring for 12 consecutive quarters the national mortgage delinquency rate was 255% higher than its pre-crisis level of 1.94% in 4Q 2006.

Given that before the mortgage crisis it was unusual for a borrower “to go more than six months without either being able to cure their situation or go through the foreclosure process,” Martin says, post-crisis factors including housing equity losses, high employment rates and poor economic growth brought about unusually long-term delinquency rates.

TransUnion expects to see further delinquency rate improvements in 2013 albeit at a slow pace. The forecast includes continuous mortgage delinquency rate declines in 35 states.

Overall, the ratio of borrowers 60 or more days past due is expected to decline from an estimated 5.32% at the end of 2012 to 5.06% by yearend 2013.  

These expectations, however, are based on the presumption that throughout 2013 house prices and unemployment also will slowly improve along with the national mortgage delinquency rate.

Martin cautions that improvements will continue only if there are “no upticks such as the ones that occurred in late 2011.” Unless the pace of improvement picks up, he says, it will take another four years” to get back to “normal” delinquency rates. TransUnion expects the largest mortgage delinquency rate declines in Nevada, Minnesota, California and Arizona and to a lesser extent in other states that were heavily impacted by the mortgage crisis, such as Florida, Georgia, New Jersey and New York.