TransUnion’s 2017 Consumer Credit Market Forecast spells good news for serious mortgage loan delinquency rates. According to the recent report, these rates are anticipated to decline come next year.
“The mortgage market has improved dramatically, to a point where it has normalized on a delinquency basis. From an overall consumer credit standpoint, the mortgage marketplace also stands out from other loan types, with far more prime and above borrowers as a percentage of total accounts,” says Nidhi Verma, Senior Director of Research and Consulting in TransUnion’s Financial Services Business unit. “This improved risk distribution, coupled with rising home values, has led to a significant decline in mortgage delinquencies.”
Transunion anticipates that mortgage loans will further drop. Likewise, the report adds that mortgage delinquency rates have declined consecutively for 23 of the last 26 quarters since peaking at 7.21 percent in Q1 2010.
“The mortgage market has seen steady improvements over the last several years, and we believe lower unemployment rates, growth in median household income, and rising home values will be the primary drivers for continued strong performance in this sector,” says Joe Mellman, VP and Mortgage Business Leader for TransUnion. “The rate at which mortgage delinquencies are expected to decline is expected to slow primarily because the inventory of foreclosure properties has diminished significantly and overall credit performance is stabilizing, as the bulk of consumers recently entering the mortgage market have high credit scores and have met stringent underwriting criteria. The serious mortgage loan delinquency rate also has reached more historically ‘normal’ levels, hence further steep declines are unlikely.”
The report notes that a major driver of lower mortgage delinquency rates is the small composition of subprime borrowers who have a mortgage balance. Specifically, Transunion found that of the 66.9 million consumers with a mortgage balance in Q3 2016, only 8.5 percent were subprime borrowers–falling from the 8.7 percent of subprime borrowers of the nearly 67.4 million consumers with a mortgage balance in Q3 2015.
“While increased interest rates will likely curtail refinancing activity materially and be a headwind for purchase mortgage affordability, we still see strong future purchase demand from prospective homebuyers,” adds Mellman. “In fact, we believe with improved economic conditions we could see nearly three million first-time homebuyers in 2017, which will prove to be quite beneficial to the industry.”