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Delinquency Write-Off Rate Continues to Drop

Equifax announced more good news for the housing market on Wednesday, signaling that the broader United States economy may be on the rebound despite a disappointing first quarter 2014.

In its latest National Consumer Credit Trends Report, the company reports that home finance write-offs year-to-date in May were $43.5 billion, a giant decrease of more than 37 percent from the same point in time just one year ago.  In fact, the drop represents the lowest rate of delinquency at this point in the year in the last seven years, territory not seen since the advent of the financial crisis.

The data could point to a simple explanation: More people are able to pay their bills.

"Households continue to improve their financial situation," said Dennis Carlson, deputy chief economist at Equifax. "Delinquencies for nearly every credit sector are at the lowest point since prior to the Great Recession, with home finance leading the charge. Additionally, originations have increased as well, suggesting that consumers are ready to either rebuild or expand, depending on the circumstances they found themselves in when the dust cleared."

Indeed, the news appears to be positive through and through. The total balance of first mortgages 90 or more days past due or in foreclosure is less than $230 billion, a six year low and a decrease of 30 percent from same time a year ago. The total credit limit of newly originated home equity revolving lines in the first quarter of 2014 is $23.4 billion, a six-year high and an increase of 15.5 percent from same time a year ago.  The total balance of home equity installment loans increased 8.3 percent from April to May 2014, realizing its first month-over-month increase this year.

Further, the decrease in delinquencies may be additional evidence that consumers are shifting their priorities back to pre-downturn traditional norms. A March 2014 study by TransUnion found that, as of September 2013, consumers were once again prioritizing paying their mortgages ahead of their credit card payments. The shift reverses a startling trend that began in September 2008, when the mortgage crisis drove credit card payments to be prioritized higher than mortgage payments.

"One of the biggest impacts of the Great Recession to the credit system was its influence on consumer payment patterns," said Ezra Becker, co-author of the study and vice president of research and consulting for TransUnion.

"As unemployment rose and home prices cratered, increasingly more consumers were faced with financial constraints and had to make difficult choices—and many chose to value their credit card relationships above their mortgages. This was a measurable result of the economic environment, wherein many consumers were underwater on their mortgages and at the same time needed the liquidity afforded by credit cards to make ends meet."

Whether these normalizing trends point to a vibrant, growing economy remains to be seen but the data is encouraging to Americans who are looking to leave the wounds and scars of the financial crisis behind them.

About Author: Derek Templeton

Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.

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