The national mortgage delinquency rate (the rate of borrowers 60 or more days past due) declined for the fourth consecutive quarter, dropping from 5.41 percent in Q3 2012 to 5.19 percent in Q4 2012. On a year-over-year basis, the mortgage delinquency rate has declined nearly 14 percent from 6.01 percent in Q4 2011.
"The national mortgage delinquency rate experienced its largest yearly decline since the conclusion of the recession, though we still remain far above normal levels," said Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit. "For the most part, newer vintage mortgage loans are not the reason for the stubbornly high delinquency rate. They are performing relatively well. The elevated delinquency levels that we still are experiencing are a result of older vintage loans—borrowers who haven't been making their payments for a rather long time that are still in the system, inflating the overall rate."
During the height of the mortgage crisis, mortgage delinquencies rose 54 percent in 2007, 53 percent in 2008 and 50 percent in 2009. The subsequent decline has been a slow process with delinquency levels dropping seven percent in 2010, six percent in 2011 and now falling 14 percent in 2012.
Thirty-seven states and the District of Columbia experienced improvement in their mortgage delinquency rates from last quarter. Only three states did not experience mortgage delinquency improvement from last year.
At a more granular level, 81.4 percent of MSAs experienced a yearly decline in their mortgage delinquency rate. Notable MSAs experiencing declines included Los Angeles (-33.6 percent), Memphis (-32.2 percent), Philadelphia (-28.3 percent), Detroit (-27.2 percent) and Baltimore (-26.0 percent).
TransUnion expects the mortgage delinquency rate to continue its downward trend in the first quarter of 2013, though it will likely remain above five percent.
"The declines in the mortgage delinquency rate will likely be muted for the foreseeable future as the foreclosure process in some states can take more than 1,000 days," said Martin. "It's not clear yet, but recently announced regulatory rules related to mortgage servicing may tend to slow down this process further. What is clear from the data TransUnion collects, is that, until the old vintages work through the system, we expect the delinquency rate to remain elevated."
TransUnion's forecast is based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates, real personal income, and real estate values. The forecast would change if there are unanticipated shocks to the economy affecting recovery in the housing market or if home prices fall more than expected.