Mortgage Delinquency Picture Improves

Expect mortgage delinquency rates to mimic the economy with continued slow improvement.

August 9, 2012

The national mortgage delinquency rate (the rate of borrowers 60 or more days past due) has dropped for the second consecutive quarter, falling to 5.49% during the second quarter of 2012.

The mortgage delinquency rate has now dropped nearly 9% during the first six months of this year, according to TransUnion.

“While it is a positive sign to see mortgage delinquency rates decrease—meaning more homeowners were able to make their mortgage payments—the rate of the decline is still not at a pace that will push levels significantly closer to pre-recession norms,” says Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit. “The pace of improvement should pick up when we review third quarter results, helped by a few months of relatively good news on home prices, this year's resurgence in refinance activity related to HARP 2.0, and record low mortgage interest rates.”

Between the first and second quarters of 2012, all but five states experienced decreases in their mortgage delinquency rates and 76% of metropolitan areas saw mortgage delinquency rates improve.

On a year-over-year basis, two of the states hurt most by the mortgage crisis (Arizona and California) have seen the greatest improvement in mortgage delinquencies. Since the second quarter of 2011, California's mortgage delinquency rate has dropped nearly 22% to 6.13%, while Arizona's rate declined 21% to 6.14%.

Both states had double-digit mortgage delinquency levels just two years ago.

Mortgage delinquency

As in Arizona and California, many other states have experienced stabilization in home prices, although unemployment levels continue to remain stubbornly high. Looking at multiple economic factors, TransUnion's forecast predicts mortgage delinquency rates will maintain their downward trajectory for the remainder of 2012.

Martin believes mortgage delinquencies will mimic the economy—continued slow improvement. “With steadying home prices, and mortgage interest rates remaining at extremely low levels, it appears that market conditions are set up to allow for further declines in the mortgage delinquency rate.”

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. Its 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.