Mortgage delinquencies are likely to fall in 2014 as late payments on credit cards rise, according to an annual forecast from TransUnion.
The national mortgage delinquency rate the percentage of borrowers who are 60 days or more past due on their loan payments is expected to be 3.94% at the end of 2013. TransUnion expects the delinquency rate to fall another 5% over the next year, ending the fourth quarter of 2014 at 3.75%.
Mortgage delinquency rates plunged far more steeply over the past few years as borrowers recovered from the economic crisis. Delinquency rates will have dropped a projected 23% in 2013 after falling 15% in 2012, 7% in 2011 and 6% in 2010.
Now rising interest rates on mortgages will curb the rate of decline, according to Tim Martin, group vice president of U.S. housing in TransUnion's financial services business unit. "Some borrowers won't be able to refinance, and some won't be able to sell their homes because rising interest rates raise the cost of homeownership," Martin says.
But the overall outlook for homeowners is increasingly strong as employment rates and house prices rise, according to Martin. "The folks who are delinquent are not people who took out mortgages recently, but the ones who took out mortgages in 2006 through 2008, who've been delinquent for a very long time."
Meanwhile, credit card delinquencies are expected to increase by nearly 10% next year. TransUnion says that the ratio of borrowers who are 90 days or more past due on their credit cards will climb from 1.51% at the end of this year to 1.66% at the end of 2014.
Even with an uptick in late payments, credit card delinquencies remain very low compared with recent years, according to TransUnion. From 2007 to 2012, year-end credit card delinquency rates averaged 2.38%.
"This is just normal delinquency from existing borrowers," Martin says. "The only way to have zero delinquencies is not to make any loans at all."
For lenders, these trends suggest "there isn't much of a credit risk issue today," Martin says. "The loans people are making today are performing well, so lenders might be willing to take more of a risk to help more folks get a mortgage or a credit card. We have some room to grow in that regard."
TransUnion's forecasts draw on assumptions about a number of economic factors, including consumer confidence, unemployment rates, gross state product and real estate values.