TransUnion Forecasts Mortgage Delinquency Rate to Reach Pre-Recession Levels in 2015
CHICAGO, IL--(Marketwired - Dec 10, 2014) - TransUnion released its annual forecast today for two key consumer credit statistics -- mortgage and credit card delinquency rates. The national mortgage loan delinquency rate (the ratio of borrowers 60 or more days past due) is projected to decline to 3.12% to close 2014, and reach 2.51% by the end of 2015. That would end next year at the lowest level since hitting 2.61% in Q3 2007, prior to the Great Recession. As of Q3 2014, the mortgage delinquency rate stands at 3.36%.
National mortgage delinquency peaked at 6.93% in Q1 2010. Since that peak, the delinquency rate has dropped almost every quarter, with minor bumps occurring in Q3 and Q4 2011.
"We expect the national mortgage loan delinquency rate to continue its decline throughout 2015, marking four consecutive years of quarterly decreases," said Steve Chaouki, head of financial services for TransUnion. "We anticipate interest rates to remain relatively low next year and unemployment rates to continue their decline, both of which should help fuel home sales and improve consumers' ability to pay. Foreclosures are also expected to continue to funnel through the legal system in 2015, which will reduce delinquencies that have been lingering for some time. All of these factors will contribute to a further decline in mortgage delinquencies."
"While we project that delinquencies will approach prerecession levels, it should be noted that they will likely remain above the historic norm of 1 1/2 - 2%; mortgage delinquency was rising even before the official 'start' of the recession. It is also important to note that the housing environment is far different now than it was when we last observed rates this low," continued Chaouki. "Regulatory requirements and scrutiny, recent home value appreciation and consumers' prioritization of payments have all changed the landscape of consumer mortgage lending."
One illustration of those differences is in the percentage of mortgage loans held by subprime consumers. The last time mortgage delinquency rates were near 2.5% was in Q3 2007, when there were 62.4 million mortgage accounts on the books. Of those accounts, 10.3% (6.4 million) belonged to subprime borrowers. Seven years later, there are nearly 10 million fewer mortgage accounts active overall; and of the 52.8 million mortgage accounts on record in Q3 2014, only 7.4% (3.9 million) are loans to subprime borrowers.
"Even though several years have passed since the mortgage crisis, mortgage lending remains relatively tight," said Chaouki. "In the last year alone (Q3 2013 to Q3 2014), we have recorded nearly one half million fewer subprime mortgage accounts than in the prior 12 months, even as the total number of mortgage accounts overall grew by about 500,000."
At the state level, mortgage loan delinquency rates peaked generally in late 2009 and early 2010, in line with the national average. TransUnion is projecting 33 states to have delinquency rates lower than 2.5% by the end of next year. And while the United States overall is expected to see a nearly 20% decline next year in its mortgage delinquency rate, 12 states are projected to have 30% or greater decreases. All but three states will either experience a decline or see their mortgage delinquency rates remain relatively flat over the course of 2015.
On an absolute percentage point basis, TransUnion forecasts the largest mortgage delinquency rate declines will happen in Nevada (down from 4.65% to 2.97%), Georgia (down from 3.31% to 1.92%), Maryland (down from 4.17% to 2.83%) and Illinois (down from 3.37% to 2.17%). Increases in delinquency are expected in only three states: Idaho (up from 2.16% to 2.44%), Massachusetts (up from 3.18% to 3.26%) and North Dakota (up from 0.97% to 1.02%).
The serious credit card delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards) is expected to remain well below average historical levels in 2015. TransUnion's forecast calls for card delinquency to end 2014 at 1.52%, and remain flat at 1.53% by Q4 2015, with seasonal movement throughout the year. In contrast, between 2007 and 2013 the credit card delinquency rate averaged 2.25% in the fourth quarter.
Credit card debt per borrower is expected to rise slightly from $5,363 in Q4 2014 to $5,396 in Q4 2015, but still remain well under the 2007-2013 Q4 average of $5,722. Though the majority of states will experience a rise in credit card debt per borrower, most increases will be below 1%.
"The credit card industry has been performing exceptionally well for several years, and we do not expect this to change in 2015," said Ezra Becker, vice president of research and consulting at TransUnion. "While we have seen an uptick in subprime lending, the increases have been relatively small and to date have not had a material impact on either delinquency or debt levels."
As of Q3 2014, there were 29.2 million subprime card accounts, constituting 8.3% of all credit card accounts. This is an increase from one year ago (Q3 2013), when there were 26.7 million cards held by subprime borrowers, constituting 8.0% of all credit card accounts. Contrasted to the same period in 2007, these are relatively low numbers -- seven years ago, there were nearly 20 million more credit card accounts (48.7 million) held by subprime consumers, constituting 12.6% of all credit card accounts.
"Our data show that subprime borrowers have lower delinquencies on their credit cards than historic norms, and much of this is likely due to the increased value today's consumer is placing on credit cards," said Becker. "We have previously presented studies that show the increased importance of credit cards for many households as a means of getting by during tough times -- our research on the reversal of the payment hierarchy demonstrated clearly that many consumers were prioritizing card payments ahead of mortgage payments for several years post-recession. That dynamic is winding down as home values improve and unemployment abates, but card lenders are still feeling the benefits of it."
While subprime credit card delinquency rates were as high as 18.0% in Q3 2007, they dropped to 13.4% in Q3 2013 and currently stand at 12.8% as of Q3 2014. As card lenders continue to ease their underwriting standards, TransUnion expects card delinquency rates to align with historical norms, both in the subprime segment and overall.
Twenty-four states are expected to see an increase in their credit card delinquency rates during 2015, with the largest rises in Mississippi (up from 2.50% to 2.81%), Arkansas (up from 1.95% to 2.07%) and Utah (up from 1.11% to 1.20%). The largest declines are projected in Massachusetts (down from 1.20% to 1.10%), Wyoming (down from 1.11% to 1.03%) and Maine (down from 1.35% to 1.27%).
TransUnion's forecasts are based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates and real estate values. The forecasts would change if there were unanticipated shocks to the economy, such as if home prices unexpectedly fall. Better-than-expected improvements in the economy, such as precipitous drops in unemployment, could also impact these forecasts.
60-Day Mortgage Loan Delinquency Historical Data and Projections for 2015
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90-Day Credit Card Delinquency Historical Data and Projections for 2015
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Credit Card Debt Per Borrower Historical Data and Projections for 2015
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Note: Q4 2014 also is a projected number as the quarter has not yet ended.TransUnion's Industry Insights Report
The data provided are gathered from TransUnion's proprietary Industry Insights Report (IIR), a quarterly overview summarizing data, trends and perspectives on the U.S. consumer lending industry. The report is based on anonymized credit data from virtually every credit-active consumer in the United States.
As a global leader in information and risk management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering high quality data, and integrating advanced analytics and enhanced decision-making capabilities. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion reaches businesses and consumers in 33 countries around the world. www.transunion.com/business