Have mortgage delinquencies peaked?

A top executive at credit reporting agency Equifax told Reuters that he believes mortgages and credit card delinquencies may have peaked.

Yesterday I wrote about a slight drop in foreclosures, even though for the third month in a row there were more than 300,000 foreclosure filings. If we are seeing a peak, that could mean that housing prices are near or at the bottom.

The numbers of people at least 30 days late on their mortgages have increased by 58.4 percent from last year. In May, 7.01 percent of people were at least 30 days late. In May 2008 4.42 percent were delinquent. Dann Adams, president of U.S. Information Systems for Equifax told Reuters that while the year-over-year increase is dramatic, the pace of sequential increases has slowed. "The next three months should determine if we've really flattened out."

Job losses will be the key unknown in this equation. If massive layoffs continue than we're probably nowhere near the bottom. But if job losses flatten out, that will help to stabilize the credit markets.

Banks have put the breaks on new loans. No mortgages are being written without verification of income and employment, according to Adams. He believes this greater scrutiny will limit delinquency rates.

But the big question I have is where do the Alt As, interest-only loans and other exotic mortgages fit into this rosy picture? Many are due to reset in 2010. With so many mortgages underwater and the prospect of selling a home still fairly weak, will we see another wave of foreclosures as these loans reset?

Hopefully, Obama's refinance plans will help many of these homeowners avoid foreclosure. I have a number of friends with interest only-loans who have already taken advantage of the refinance plan.

Another factor that could tip the scales is the tightening of credit by credit card companies. Credit card companies have closed accounts and reduced charge limits over the past year. In just one year, 75 million accounts were closed. There were 365 million U.S. credit accounts last month compared to 440 million in June of last year. In addition to that $600 billion in credit has been withdrawn from the market.

These reductions in credit availability put a stranglehold on consumers who already lost the ability to tap into the equity in their homes, as home values continue to fall. If credit card use is cut, their last lifeline to avoiding foreclosure and bankruptcy might be cut as well. Adams agrees and told Reuters, "The last lifeline for many consumers is their credit card, and that lifeline is getting shorter."

So, unless jobs start to appear on the horizon, I doubt we're at the bottom. Other pressures that could kill any chance of stabilization include rising oil prices and higher interest rates -- both making people's financial lives more difficult. I hope Adams is right that we're nearing stabilization, but the pressures appear to disprove his theory.

Lita Epstein has written more than 25 books including the Complete Idiot's Guide to Improving Your Credit Score.

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