TransUnion has released its findings and analysis on mortgage delinquency for the fourth quarter of 2010, which found that the national mortgage loan delinquency rate dropped to 6.41 percent.
This statistic, which is traditionally seen as a precursor to foreclosure, reflects a decrease of 0.47 percent from the company's third quarter reading of 6.44 percent. The Chicago-based credit bureau's findings confirm consecutive quarterly drops for U.S. mortgage delinquency in 2010, and almost a 7 percent decline year-over-year.
On the surface, ""[t]his is great newsÃ¢â‚¬Â¦but not so fast,"" says a TransUnion spokesperson. The final quarter in 2010 marked the smallest decline in mortgage delinquency since the recession ended in the summer of 2009.
What should be inferred from this deceleration and what can the industry expect for 2011? Falling real estate values, the ending of the homebuyers' tax credit, and the influx of foreclosures on the market are influencing factors in TransUnion's projection that we could see mortgage delinquency rates edge up in the beginning of 2011.
Commenting on the latest results, Tim Martin, group vice president of the U.S. housing market in TransUnion's financial services business unit, said, ""The current deceleration in falling mortgage delinquency rates is indeed concerning.""
Martin noted that although the increase in January's consumer confidence index is good news, ""real estate prices as reflected by the Case Shiller Home Price Index have been consistently falling since the end of second quarter.
What we hoped was a temporary third quarter price adjustment due to the ending of the homebuyer tax credit appears now to be more systemic,"" he said.
According to Martin, while a variety of factors, such as household income and interest rates, impact the housing market, real estate values are perhaps the most important. He explained that property values have reflected a negative correlation with mortgage delinquency of more than 80 percent since the recession began at the end of 2007.
Add to the mix, the glut of foreclosures already on the market and the sizeable number of defaulted loans coming down the foreclosure pipeline, and experts are forecasting home prices to slip anywhere from 5 to 10 percent further this year.
With the large volume of distressed homes, TransUnion believes that if the home prices for existing residential real estate continue to slide, mortgage delinquency rates may start to tick upwards. The company says it has already adjusted its econometric models using a less optimistic assumption about future house prices.
""These models now suggest that the 60-day mortgage delinquency rate will likely be flat or edge up next quarter, but then begin to drift lower by year end,"" Martin said. ""This forecast would change if there are unanticipated shocks to the economy affecting the recovery in the housing market.""
According to TransUnion's latest report, mortgage borrower delinquency rates in the fourth quarter of 2010 continued to be highest in Nevada (14.76 percent) and Florida (14.50 percent), while the lowest mortgage delinquency rates continued to be found in North Dakota (1.72 percent), South Dakota (2.22 percent), and Alaska (2.73 percent).
Unlike recent quarters, many states (33) showed increases in delinquency from the previous quarter, with North Dakota (+13.16 percent), Vermont (+10.87 percent), and the District of Columbia (+7.4 percent) experiencing the largest increases.
TransUnion says analysis of later-stage mortgage delinquency, such as the ratio of borrowers 90 or 120 or more days past due, suggest that a possible deceleration in foreclosure rates is underway.