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Mortgage

Mortgage delinquencies are declining, but a rise is coming

Average debt per borrower rose to $220,244

Consumer credit activity rose in the fourth quarter of 2020, as low interest rates and high housing demand continued to fuel mortgage demand, according to TransUnion’s latest industry insights report.

Serious delinquency rates in mortgages declined year-over-year to 0.7% in the fourth quarter of 2020. Delinquency rates were at 1% in the fourth quarter of 2019.

“On the surface, the consumer credit market is performing quite well,” said Matt Komos, vice president of research and consulting at TransUnion. “Additional stimulus and flattening unemployment rates point to a continuation of this trend. However, the performance of those accounts still in accommodation will help shape the true consumer credit picture.”

The final delinquency tally for December 2020 showed that, by year’s end, 1.54 million more delinquent and 1.7 million more seriously delinquent mortgages were reported than at the start of 2020, according to a separate January report from Black Knight.

With nearly 2 million extra overdue loans in the pipe, that’s approximately 3.4 million loans in total at December’s end. Overall, the data analytics company estimates a more than 250% increase in 90-day default activity year-over-year.

Komos added that many accounts are expected to come out of accommodation between March and May – including mortgage accounts.

“We will soon see the true impact of those programs for both consumers and the credit marketplace,” he said.

A total of 50.5 million mortgage loans were issued in the fourth quarter of 2020. That’s up from 50.1 million in the fourth quarter of 2019.

As an aside, the third quarter of 2020 saw mortgage originations skyrocket, reaching nearly 4 million total loans – the highest level of originations since the Great Recession. That’s also 67% higher than the third quarter of 2019. The delinquency rate in the third quarter of 2020 was down 57 basis points from the second quarter of 2020 and up 368 basis points year-over-year.

The average balance of new mortgage loans in the fourth quarter of 2020 was $296,505 – nearly $10,000 higher than the average balance in the fourth quarter of 2019. In all, new mortgage origination loan amounts surpassed $1 trillion in 2020.

However, TransUnion Senior Vice President and Mortgage Business Leader John Mellman said he expects a rise in delinquencies in 2021 due to expiring forbearance plans.

“Refis continue to be a major driver of the increase in activity,” he said. “While reported delinquencies are currently low, we expect to see a rise in delinquency levels at the end of the first quarter and into the second quarter.”

Here are some additional mortgage numbers from TransUnion’s fourth quarter 2020 report:

  • Originations were spread evenly between refinancing and new purchases, with a 52% refinance share and a 48% purchase share
  • New mortgage volumes grew the most, at 118% year-over-year for lower risk consumers
  • The overall 90+ consumer level delinquency rate dropped to .83% in the fourth quarter, down from 1.16% in the fourth quarter of 2019
  • The average debt per borrower was $220,244, up from $212,040 in the fourth quarter of 2019. As a comparison, the average debt per borrower in the fourth quarter of 2017 was $201,737.

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