Drop in mortgage delinquencies shows no sign of bottoming out soon
The long-running slide in mortgage payments 60 or more days past due will continue next year, according to TransUnion's consumer lending forecast.
Serious mortgage delinquencies are on track to fall to lows not seen since TransUnion started tracking the metric in 2005. The forecast calls for the serious delinquency rate to drop to 1.65% by year-end 2018 from the current 1.83%.
There hasn't been enough of a sustained plateau in serious delinquencies to suggest they will bottom out yet, said Joe Mellman, a senior vice president at the company.
"It's hard to know what the natural floor is," he said. "We'll see a few quarters where there isn't much change and that will signal it."
While there has by some measures been a slight uptick in early-stage delinquencies due to the impact of severe hurricanes and other natural disasters in certain parts of the country, forbearance servicers typically offer to affected borrowers will offset the concern, Mellman said.
In addition to forbearance, TransUnion's forecast counts on strong employment, rising home prices and the relative scarcity of subprime underwriting in the mortgage market to outweigh stresses from natural disasters and increases in short-term interest rates when it comes to home loans.
Because short-term rates, while higher, are still historically low, they will be "well-managed by most consumers," according to TransUnion.
The forecast does call for a slight deterioration in performance in some other consumer credit sectors outside the mortgage market, where subprime underwriting is more prevalent, Mellman noted.
Auto loan delinquencies of 60 days or more could be 3 basis points higher by the end of next year at a projected 1.46%.
The serious delinquency rate for credit cards, which TransUnion defines as being 90 or more days late, will likely increase 10 basis points over the course of the coming year to 1.96%.
While delinquencies on unsecured personal loans dropped between year-end 2016 and 2017 to 3.37% from 3.83%, they will remain largely static in 2018, possibly dropping a basis point to 3.36% by year-end.
TransUnion in its forecast also reiterated earlier predictions suggesting the market will be producing more home equity lines of credit.
"There's a lot of home equity out there right now," Mellman noted.
Given the tight housing market in many areas, the low mortgage interest rates consumers locked in recently, and the higher rates and housing costs borrowers face now, HELOC-funded home improvement could be popular in 2018, he said.
Credit unions have been the most active institutions in the HELOC market, TransUnion found in a study earlier this year, but a broader mix of institutions are likely to become more active in 2018, Mellman said.
"I think we are going to see some changes in the mix," he said. "Anecdotally, when I speak to our customers, there is more interest in home equity."
Larger institutions are more likely to open up their HELOC programs in the coming year, said Mellman.
Because HELOC rates are generally lower than that of competing consumer finance products like personal loans and credit cards, some customers might eventually migrate away from unsecured financings, he said.
But consumers who lack home equity or prefer more accessible forms of financing than HELOCs offer will ensure a steady flow of continued personal loan and credit card demand continues, said Mellman.