The national mortgage loan delinquency rate—the ratio of borrowers 60 or more days past due—is expected to decline to 3.75% by the end of 2014 from an estimated 3.94% at the conclusion of 2013, according to TransUnion’s latest annual forecast on mortgage delinquency rates.
Although the delinquency rate is estimated to drop for the fifth consecutive year, the forecasted dip will be the lowest observed in that time frame.
"TransUnion expects the national mortgage delinquency rate to continue its downward trend, though we see a few obstacles in 2014 that will limit the decline and keep it well above ‘normal’ levels," said Tim Martin, group vice president of U.S. housing in TransUnion’s financial services business unit.
In addition, the 4.82% projected fall in 2014 would reverse the trend of increasing percentage declines.
Since 2010, the rate of decline in delinquencies has accelerated each year, rising from 6.40% in 2010 to 7.14% in 2011 to 15.05% in 2012 and a projected decline of 23.43% in 2013.
"The primary reason for the slowdown will be the pending rise in interest rates, which may hinder home sales while also blocking refinancing as an exit strategy for some mortgage borrowers," Martin said. "Additionally, foreclosure timelines continue to expand in many states, keeping longer vintage delinquencies in the system."
Since the mortgage loan delinquency rate peaked in most states in late 2009 and early 2012, hitting national levels of 6.88% in the fourth quarter of 2009 and 6.93% in the first quarter of 2010, it has decreased nearly every quarter with exceptions in Q3 and Q4 2011.
Furthermore, mortgage delinquencies have fallen nearly 41% from that peak period to 4.09% in the third quarter of 2013, while subprime borrower delinquency levels only tumbled roughly 15% from 42.96% in Q1 2010 to 36.56% in Q3 2013.
"The encouraging story surrounding subprime delinquency rates is that most of the decline observed has occurred since the beginning of 2012. As interest rates stayed low, house prices started to rebound—and that gave many subprime borrowers the option of refinancing or selling their way out of the delinquent mortgage before the logjammed foreclosure process caught up to them," Martin said.