Older Vintages, Sluggish Recovery Keep Delinquencies Above Normal

At yearend 2012 not even the largest yearly decline since the conclusion of the recession could bring the national delinquency rate below the “normal” range of 1.5% to 2%, according to TransUnion.

Delinquency rates declined for the fourth consecutive quarter to 5.19% in 4Q 2012, down from 5.41% in the third quarter and 6.01% at yearend 2011.

Up to 81.4% of MSAs experienced a yearly decline in their mortgage delinquency rate.

Despite widespread improvements in individual state performances—37 states and the District of Columbia saw quarter to quarter improvement—data show that at best the national housing market recovery continues to be sluggish, analysts said.

Variables leading to the not so optimistic outlook include findings that while the mortgage delinquency rates declined in 2012, the average mortgage debt increased in the fourth quarter to $186,785, up from $186,445 in the third quarter. The average mortgage debt however improved slightly year-over-year.

For the most part, according to Tim Martin, group vice president, U.S. housing market, in TransUnion’s financial services business unit, “Older vintage loans” or borrowers who haven’t been making their payments for a rather long time that are still in the system, continue to inflate the overall rate.

During the height of the mortgage crisis, mortgage delinquencies increased 54% in 2007, 53% in 2008 and 50% in 2009. Subsequent declines have been “a slow process” that gradually led to delinquency rate decreases of 7% in 2010, 6% in 2011 and 14% in 2012.

Martin expects the mortgage delinquency rate will continue to trend downward in the first quarter of 2013 at above 5%, but “likely be muted for the foreseeable future as the mortgage delinquency rate will likely as the foreclosure process in some states can take more than 1,000 days.”

Until and unless “the old vintages work through the system,” the national delinquency rate is expected to remain elevated.