Report: Long Cure, Foreclosure Timelines Cause High Delinquency Rate
By: Esther Cho
The national mortgage delinquency rate might be “stubbornly high,” according to TransUnion, but the delinquency rate would actually reflect normal levels seen 10 years ago if cure or foreclosure timelines were shortened.
According to TransUnion, the first quarter national mortgage delinquency rate (60-plus delinquencies) was 4.56 percent, which is more than double the pre-crisis norm.
However, when aging, 180-plus delinquencies were taken out of the equation, a new TransUnion analysis found the delinquency rate would actually be around 1 percent.
The credit bureau also reported newer mortgages are performing well and avoiding delinquency, with only 2.5 percent of mortgages originated in 2010 rolling into delinquency status within their first three years.
On the other hand, 14.5 percent of mortgages originated in 2007 have been delinquent at least once within their first three years. As of February 2013, mortgages originated before 2009 accounted for 86 percent of all delinquent mortgages.
This suggests the issue with the high mortgage delinquency rate is not new loans that are falling behind on payments.
“[E]ven the older vintages, at one time deteriorating quickly, are now contributing new delinquent borrowers at rates nearly identical to the good-performing newer mortgages,” said Tim Martin, group VP of U.S. Housing in TransUnion’s financial services business unit.
Rather, the real culprit leading to an elevated delinquency rate is the long timeline when handling problem loans.
“It’s no longer a credit quality or home price depreciation issue, and we are not adding many new delinquent mortgage borrowers into the pool these days,” he explained. “Instead, it’s an issue of the timelines to cure or foreclose. We are simply not draining the pool very fast; and the size of the ‘drain’ varies significantly by state.”
To make its point, TransUnion analyzed the impact of the increasing cure or foreclose timelines on delinquency rates.
After excluding borrowers who have remained in delinquency status for 180 days or more, TransUnion determined that the mortgage delinquency rate would have peaked in 2009 at about 3.05 percent compared to the actual peak of 6.89 percent. The current delinquency rate of 4.56 percent would actually be 1.68 percent, which is the lowest level since the second quarter of 2003 when the delinquency rate was 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,” Martin said. “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.’”
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