Fewer Americans Fall Behind on Mortgage Payments

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Late-payment rate on mortgages falls in 4Q
David Calvert/Bloomberg via Getty Images
By ALEX VEIGA

LOS ANGELES -- U.S. homeowners are doing a better job of keeping up with mortgage payments, a trend that has reduced the rate of late payment on home loans to the lowest level in more than five years.

The percentage of mortgage holders at least two months behind on their payments fell in the October-December quarter to 3.85 percent from 5.08 percent a year earlier, credit reporting agency TransUnion said Wednesday.

The last time the mortgage delinquency rate was lower was 3.61 percent in the second quarter of 2008. The firm's data go back to the second quarter of 2007.

The latest rate also declined from 4.09 percent in the third quarter, the firm said.

Struggling homeowners have seen their finances shorn up by rising home values, an improving job market and efforts to restructure home loans so they're more affordable. That has enabled them to make timely payments.

Another key driver in the improved late-payment rate: Many of the risky home loans made before 2008 that went unpaid are no longer a factor, since the homes have been sold or foreclosed upon. Loans issued since then, after banks tightened lending standards, are less likely to go unpaid.

"We are on the downward slope of the mortgage delinquency curve, so we expect to continue seeing delinquency rates that have not been seen for several years," said Steve Chaouki, head of financial services for TransUnion.

The rate of late payments on home loans has been steadily declining over the past two years. At the same time, U.S. home sales and prices have been rebounding over the past two years, while foreclosures have been declining.

Moderate but stable job gains, still-low mortgage interest rates, and tight supply of homes for sale have helped fuel the housing rebound. %VIRTUAL-article-sponsoredlinks%That's also made it easier for homeowners to refinance, catch up on payments or sell their home, avoiding foreclosure.

Many borrowers also are making keeping up with their mortgage payments a priority over other financial obligations, encouraged by rising home values and lower unemployment, Chaouki said.

This is a reversal of a trend during the last recession and housing downturn, which left many homeowners owing more on their home than it was worth.

Even so, the mortgage delinquency rate is still about twice as high as it was before the housing bubble burst in 2007. That suggests that many homeowners still are struggling to make their payments. It also reflects that many home loans made during the housing boom remain unpaid but have yet to work their way through the foreclosure process.

TransUnion expects that mortgage delinquencies will continue to decline, falling to a rate of 3.7 percent by the end of March. The forecast assumes the U.S. economy will continue to strengthen and foreclosures will continue to thin out the backlog of older loans gone unpaid.

All told, all the states and the District of Columbia posted sharp annual declines in their mortgage late-payment rate for the fourth quarter, the firm said.

Arizona (38.6 percent), California (37.8 percent) and Nevada (34.7 percent) had the biggest annual declines. Only New York and New Jersey didn't post a double-digit percentage drop in their mortgage delinquency rate.

Meanwhile, the number of new home loans made by lenders fell in the third quarter as interest rates spiked last summer.

The data lags by a quarter, so the latest TransUnion figures cover the July-September period. They show that new home loans originated during the quarter declined to 1.9 million from 2.3 million in the third quarter of 2012.

The share of new home loans made to borrowers with less-than-perfect credit grew to 6.61 percent from 5.55 percent a year earlier. That's still well below the roughly 16.3 percent share of new mortgages that went to non-prime borrowers in the third quarter of 2007, just before the recession.

In the VantageScore credit rating scale, borrowers with a score lower than 700 on a scale of 501-990 are considered non-prime borrowers.

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Fewer Americans Fall Behind on Mortgage Payments
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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