TransUnion predicts that both mortgage and credit card delinquencies will drop sharply again in 2011, after large declines already experienced in the second half of this year.
Late payments on credit cards did not rise the way mortgages did during the recession, partly because card users were careful to keep payments current so their credit lines were not shut down, according to Ezra Becker, vice president of research and consulting at TransUnion. But problem payments increased and banks had to charge off billions in balances they were unable to collect.
By the end of 2011, TransUnion expects just 4.98% of mortgages will be 60 days or more behind, a nearly 20% drop from an expected 6.21% and the end of 2010. The mortgage delinquency rate peaked at 6.89% in the fourth quarter of 2009. The rate considered "normal" for mortgages is 1.5% to 2%.
Reasons cited for the predicted gains include a slowly improving unemployment picture and the fact that many of the properties where homeowners have problems making their payments have already worked through the system.
"[The expected improvement in mortgage delinquencies next year] will be driven by a slowly improving unemployment picture and continued stabilization in housing prices," says Steve Chaouki, group vice president in TransUnion's financial services business unit. "While there is continued price pressure in many markets, we expect a growing number of areas of the country to experience a rise in property values along with some stabilization of values in those states and markets hardest hit by the recession."
TransUnion projects double-digit declines in mortgage delinquencies for every state and the District of Columbia through 2011. Interestingly, the states projected to experience the greatest decreases in mortgage delinquencies - Nevada (-24.77%), Arizona (-24.27%) and Florida (-23.90%) - are the same areas expected to have the highest 60-day mortgage delinquency rates at the end of next year (Florida - 11.06%; Nevada - 10.87%; Arizona - 7.59%).
Credit card delinquency rates already have dropped dramatically since their peak in the first quarter of 2009, when about 1.21% of all cards were 90 days or more past due. With consumers being more careful about how they use credit cards, TransUnion expects card delinquencies to drop to 0.75% by the end of 2010, with the rate falling even further and ending next year around 0.67% of all balances. The company said the expected decline will be partly due to "charge-offs in the higher risk segments" and partly because of "more conservative spending in the low-risk segments."
"Many factors have influenced the way consumers view and utilize credit card credit - including the Credit CARD Act, which has shifted the way lenders market and price this instrument; the payment hierarchy flip consumers displayed this past year - paying credit card bills before their mortgages; dramatic increases in the volume and duration of unemployment; and of course, home value depreciation," says Becker.
Tighter lending standards also are playing a role. More than 8 million consumers have dropped off the credit card rolls in the past year, many because their cards were cut off by banks. That means 78 million U.S. consumers do not have credit cards, compared to 70 million last year.
As a result of the recession, banks are less likely to open new accounts for consumers with troubled credit histories, TransUnion reports.
Nevada (1.08%), Florida (0.90%) and Mississippi (0.82%) should have the highest credit card delinquency rates at the end of 2011, while North Dakota (0.38%), South Dakota (0.43%) and Nebraska (0.44%) are expected to have the lowest levels.