Mortgage defaults improved but originations still down from crisis
Better consumer credit quality helped push the serious mortgage delinquency rate to its lowest level since the Great Recession, but originations remain low due to a combination of tighter underwriting standards and eroding homebuyer affordability, according to TransUnion.
The serious mortgage delinquency rate fell 25 basis points to 1.67% in the second quarter from a year ago, while mortgage originations declined by 0.6%. The 30-year mortgage rate shot up 14% during this same time frame, making it a likely contributor to falling origination volumes, at a time when home price appreciation also created financial hurdles for homebuyers.
A shift in lender strategy since the crisis also kept mortgage originations down; the subprime share of mortgage originations fell by nearly half since 2008 and product offerings also changed, which may have helped develop a less risky population of borrowers.
"The proliferation of subprime mortgage lending in the mid-2000s, among other market factors, led to massive increases in the percentage of borrowers 60+ days past due. The metric, which traditionally had hovered around 2%, spiked to nearly 4% by Q2 2008 and peaked at over 7% in Q1 2010. Following the crisis, the tightening of lending standards has helped push the delinquency rate to much-improved levels," according to TransUnion's Industry Insights Report.
About 52% of scorable consumers had VantageScore 3.0 and credit scores of 661 and above, which most lenders consider prime or above, in the second quarter of 2008. This share jumped to 60% in this year's second quarter.
Like originations, the homeownership rate has also declined, holding steady at 64.2% since 3Q17 after hitting 70% at the beginning of the decade.