Expect a Slow Decline in Mortgage Delinquencies
'We would have hoped for a projection that called for a more substantive drop in delinquencies.'
In 2013, the national mortgage loan delinquency rate will decrease somewhat while credit card delinquency rates may edge up, although they'll remain at relatively low levels, according to annual forecasts from TransUnion.
The national mortgage loan delinquency rate (the ratio of borrowers 60 or more days past due) is projected to decline to 5.06% by the end of 2013 from an estimated 5.32% at the conclusion of 2012.
Credit card delinquency rates may increase slightly from 0.83% in fourth quarter 2012 to 0.87% in fourth quarter 2013.
TransUnion's forecasts are based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates and real estate values.
The forecasts would change if there are unanticipated shocks to the global economy affecting recovery in the housing market, or if home prices unexpectedly continue to fall.
TransUnion forecasts mortgage delinquencies—a statistic generally considered a precursor to foreclosure—will decline in 34 states and the District of Columbia, with only 13 states experiencing increases.
"While we are encouraged by the direction of the [mortgage] forecast, we would have hoped for a projection that called for a more substantive drop in delinquencies. If the pace of improvement does not pick up, it will take a very long time to get back to 'normal' delinquency rates," says Tim Martin, group vice president of U.S. housing in TransUnion's financial services business unit.
The mortgage delinquency rate peaked in the fourth quarter of 2009 at 6.89% after rising 12 consecutive quarters from its 1.94% mark in in the fourth quarter of 2006. The 255% increase in those three years was unprecedented.
Nearly three years after the peak in mortgage delinquency rates, mortgage delinquencies have dropped only 21% to 5.41%—still well above the "normal" delinquency rate range of 1.5% to 2%.
"The slow improvement pace we are experiencing right now seems to be less about new borrowers not being able to make their payments and more about existing borrowers who have been delinquent for a very long time," said Martin. "For example, our analysis shows the delinquency rate would fall to around 2.5% if we simply took borrowers who haven't made a mortgage payment in over a year out of the calculation. By comparison, pre-recession, it was unusual for a borrower to go more than six months without either being able to cure their situation or go through the foreclosure process."
TransUnion is projecting the largest mortgage delinquency rate declines to occur in Nevada (-18.62%), Minnesota (-13.58%), California (-12.14%), and Arizona (-11.61%). Other states that were most negatively impacted by the mortgage crisis, including Florida (-8.39%), Georgia (-9.19%), New Jersey (-4.95%), and New York (-7.67%), also are expected to see declines.
Between 2000 and 2011, the credit card delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards) averaged 1.24%.
In the 51 quarters since 2000, the credit card delinquency rate has fallen below the 0.90% threshold only 10 times.
"The credit card delinquency rate continued to remain low in 2012 after reaching its lowest level since 1994 in the second quarter of 2011," says Steve Chaouki, group vice president in TransUnion's financial services business unit. "We expect much of the same in 2013 as consumers have come to rely on their credit cards for liquidity with continued high unemployment rates and a stagnant economy.
"It should be noted that we have seen credit card delinquencies drift somewhat higher in the last year," he continues. "Some of this can be attributed to the fact that credit card delinquencies were so low that at some point they were bound to increase. A more significant factor may be that credit card originations have been increasing in the last few years, and with that increase we have seen nonprime borrowers receive not only more credit cards, but also comprise a larger share of new credit cards."
The latest credit card origination data from TransUnion points to this increase in nonprime credit card borrowers. The share of nonprime, higher-risk originations (with a VantageScore® credit score lower than 700 on a scale of 501-990) was 29.55% in the second quarter of 2012. That's slightly higher than one year ago (29.28% in the second quarter of 2011), and much higher than the 23.86% observed in second quarter 2010.
Expect credit card debt per borrower, which has been relatively low since 2010, to rise in the next year from its current $4,996 level (as of the third quarter of 2012) to $5,050 in the fourth quarter of 2012 and $5,446 at the end of 2013.
This would be the highest credit card debt level since 2009. Average credit card debt per borrower peaked at $5,776 in first quarter of 2009.
Thirty-nine states and the District of Columbia will see credit card delinquency increases in 2013, while only six states will experience declines, TransUnion projects.
States expected to see the largest credit card delinquency increases in 2013 include Ohio (11.84%), Missouri (8.33%), and North Dakota 7.50%). All of these states, however, remain below their historic averages.
The largest declines in 2013 are expected in Rhode Island (-7.59%), Montana (-5.88%), and Georgia (-5.21%).