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Mortgage Delinquency Forecasted to Fall

Rate of decline expected to slow

Dec. 14, 2016

By Mortgage Daily staff



Mortgage delinquency has been falling and is forecasted to continue the decline, though the rate of improvement is expected to slow.

Delinquency of at least 60 days on the nation's residential loans is expected to conclude the fourth quarter of this year at 2.21 percent.

That would be an improvement of 25 basis points compared to the the fourth-quarter 2015, when the past-due rate was 2.46 percent.

TransUnion, which made the prediction in its 2017 Consumer Credit Market Forecast, expects the 60-day rate to retreat another 10 BPS by the final quarter of next year.

The report indicated that while delinquency has deteriorated for other consumer credit products due to increased subprime lending, mortgage delinquency has fallen each quarter since the third-quarter 2013 and declined 23 of the last 26 quarters.

Mortgage delinquency peaked at 7.21 percent in the first-quarter 2010.

"The mortgage market has improved dramatically, to a point where it has normalized on a delinquency basis," Nidhi Verma, senior director of research and consulting in TransUnion's financial services business unit, stated in the report. "From an overall consumer credit standpoint, the mortgage marketplace also stands out from other loan types, with far more prime-and-above borrowers as a percentage of total accounts.

"This improved risk distribution, coupled with rising home values, has led to a significant decline in mortgage delinquencies."

TransUnion Vice President and Mortgage Line of Business Leader Joe Mellman added that lower unemployment rates, growth in median household income and rising home values will be the primary drivers for continued strong mortgage performance.

Also contributing to improvement mortgage delinquency is a shrinking share of subprime loans. TransUnion said that 8.5 percent of the 66.9 million mortgage borrowers as of the third-quarter 2016 were subprime, down from 8.7 percent of the nearly 67.4 million loans outstanding as of year earlier.

In the third-quarter 2009, subprime borrowers accounted for 15.5 percent of the 73.0 million mortgage borrowers.

Mellman noted that an expected declining rate of improvement in mortgage performance will primarily be due to diminished foreclosed properties and stabilized credit performance.

He predicted that demand for purchase financing will rise.

"While increased interest rates will likely curtail refinancing activity materially and be a headwind for purchase mortgage affordability, we still see strong future purchase demand from prospective homebuyers," Mellman said. "In fact, we believe with improved economic conditions we could see nearly three million first-time homebuyers in 2017, which will prove to be quite beneficial to the industry."

The average mortgage debt level per borrower is expected to go from $189,914 in the fourth-quarter 2015 to $194,875 at the end of this year then climb to $198,435 in the fourth-quarter 2017.

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