The credit bureau TransUnion is putting a more positive spin on mortgage delinquencies based on analysis of home loans that remain current for at least 180 days.
Mortgages underwritten during the crazy housing-bubble buildup are skewing delinquencies rates higher. In other words, the current quality of home loans are in better shape than the hard numbers show, TransUnion determined.
A new TransUnion analysis found that stubbornly-high mortgage delinquency rates may actually be as low as those seen 10 years ago.
The mortgage delinquency rate currently stands at 4.56 percent, and remains more than double the pre-crisis “norm.” In comparison, credit card and auto loan delinquencies are both well below 1 percent and have been hovering near record lows since 2010.
TransUnion estimates the true delinquency rate is 1.68 percent when two factors are considered: the age of the mortgages and how long they remain categorized as “delinquent” before becoming current again or moving through foreclosure.
As of February 2013, mortgages originated before 2009 make up 50 percent of all outstanding mortgages, but 86 percent of all mortgage delinquencies.
For example, 20 percent of the mortgages originated in 2007 (referred to as the 2007 “vintage”) have at one time or another been delinquent, and 14.5 percent within the first three years of origination.
In contrast, only 2.5 percent of the mortgages in the 2010 vintage have seen a delinquency within their first 3 years.
“Some people may see the high overall mortgage delinquency number and worry that mortgage borrowers are still a bad credit risk; but we don’t believe that’s the right conclusion,” said Tim Martin, group vice president of U.S. Housing in TransUnion’s financial services business unit. “The newer vintages are performing quite well, and even the older vintages, at one time deteriorating quickly, are now contributing new delinquent borrowers at rates nearly identical to the good-performing newer mortgages.”
TransUnion also found that the number of days a mortgage is reported to its credit database as delinquent before it either becomes current again (“cured”) — or is foreclosed — has increased dramatically when comparing a snapshot of mortgage loans in 2007 and 2013.
The increasing “cure” or foreclosure timeline on delinquency rates also skews delinquency rates, TransUnion determined.
TransUnion adjusted the calculation of mortgage delinquency to exclude those borrowers who are more than 180 days past due on their mortgage payment.
The analysis concluded that the mortgage delinquency rate would have peaked in 2009 at about 3.05 percent (versus the actual peak of 6.89 percent) and would currently stand at about 1.68 percent (compared to the actual first-quarter rate of 4.56 percent).
The last time the mortgage delinquency rate was lower than 1.68 percent was in the second quarter of 2003 (1.67 percent).
“With house prices up, interest rates low and some of the mortgage servicing ‘rules’ getting set, it appears that delinquent borrowers are finally working themselves through the system, one way or another,” said Martin. “Our analysis shows that if we were at more traditional Cure of Foreclose timelines, then we could already be reporting mortgage delinquency rates as being back to ‘normal.’ “