The mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgages) dropped below 4 percent for the first time since 2008, ending Q4 2013 at 3.85 percent, according to TransUnion's Industry Insights Report.
The mortgage delinquency rate declined for the eighth consecutive quarter from 4.09 percent in Q3 2013 while dropping more than 24 percent from one year earlier (5.08 percent in Q4 2012).
All 50 states and the District of Columbia experienced a decline in their mortgage delinquency rates between Q4 2012 and Q4 2013. Only two states -New Jersey and New York - did not have double-digit percentage declines in their respective delinquency rates.
TransUnion's report is a quarterly overview summarizing data, trends and perspectives on the consumer lending industry. The report is based on credit data from virtually every credit-active consumer in the U.S.
Its encouraging to see the mortgage delinquency rate drop for two consecutive years, but at the same time, mortgage delinquencies continue to be twice as high as levels observed prior to the housing bubble, said Steve Chaouki, head of financial services for TransUnion.
The housing market also still shows some volatility, with both housing prices and originations dropping in the latter part of 2013 after experiencing improvements in the first part of the year.
TransUnion recorded 52.84 million mortgage accounts as of Q4 2013, down from 53.85 million in Q4 2012. There are more than 10 million fewer accounts as compared to the same period in 2008 (62.85 million).
New account originations have declined significantly in recent quarters, said Chaouki. This is primarily related to recent spikes in interest rates, particularly in the refinance market. Additionally, continuing tight lending standards remain a factor in some sectors of the market.
Viewed one quarter in arrears (to ensure all accounts are included in the data), new account originations dropped from 2.29 million in Q3 2012 to 1.95 million in Q3 2013.
Interestingly, the non-prime population (those consumers with a VantageScore 2.0 credit score lower than 700) did see an increase in their share of originations, rising from 5.55 percent in Q3 2012 to 6.61 percent in Q3 2013.
Despite the increase, the percentage of non-prime account originations remains well below those observed just six years ago (16.26 percent in Q3 2007).
TransUnion is forecasting that the downward consumer delinquency trend will continue into the first quarter of 2014, with mortgage delinquencies falling to approximately 3.70 percent by the end of March.
TransUnions forecast is based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates, real personal income, and real estate values. The forecast would change if there are unanticipated shocks to the economy affecting recovery in the housing market or if home prices begin to depreciate once again.
Mortgage loans originated in the last few years have significantly higher credit quality than those originated prior to the recession, with delinquency rates that resemble those seen seven to 10 years ago, said Chaouki. As older mortgages continue to slowly exit the system, the industry will experience continued declines in mortgage overall delinquencies.