NEW YORK -- If the U.S. economy does not suffer more setbacks, the rate of mortgage holders behind on their payments should decline significantly by the end of next year, according to credit reporting agency TransUnion.
Mortgage delinquency rates -- the ratio of borrowers 60 or more days behind on their payments -- will likely tick up to about 6 percent through the first three months of 2012, TransUnion said in its annual delinquency forecast issued Wednesday.
But by the end of next year, it could drop to 5 percent, TransUnion said. That's well off the peak of 6.89 percent seen in the fourth quarter of 2009.
Chicago-based TransUnion's forecast takes into consideration several factors, including expectations that consumer confidence and the economy will improve next year.
Also, banks are expected to get a good portion of pending foreclosures off their books next year, said Charlie Wise, TransUnion director of research and consulting.
Slowed by Foreclosures
Banks are still working through a backlog of foreclosures created by issues including the robo-signing scandal, in which bank officials signed mortgage documents without verifying the information they contained. The issue surfaced last year in areas with large numbers of foreclosures, and banks had to backtrack and review foreclosures across the country to make sure their paperwork was in order.
That slowed down the process, Wise said, and left mortgages listed as delinquent for longer than they otherwise might have been, temporarily boosting delinquency rates.
Economic uncertainty has also contributed. In the third quarter of 2011, mortgage delinquencies saw their first uptick in six quarters, largely fueled by concerns over the economy as lawmakers were debating the U.S. debt ceiling and Europe's debt crisis was unfolding.
Helping to cut the mortgage delinquency rate are a slowly improving job market and a stabilizing housing market.
While the drop will be significant, the rate will remain well above the pre-recession average of 1.5 to 2 percent.
"We have a long way to go to get back," said Steven Chaouki, a TransUnion vice president.
The situation with credit cards is much stronger. Card delinquencies -- payments late by 90 days or more -- dropped to their lowest levels in 17 years during the spring, then saw a slight increase in the third quarter, but still remained near historic lows.
TransUnion expects further edging up in the current quarter and the first three months of 2012, but then late payments on bank-issued cards should fall again.
Credit Still Tight
One reason card delinquencies are expected to remain so low is that credit is much tighter than it was before the recession. TransUnion data showed that nearly a quarter million new card accounts were opened by people with less-than-stellar credit scores during the third quarter, which contributed to the slight increase in late payments during the summer months. But banks are mainly still going after consumers with top-tier credit histories.
"Lenders are willing to lend, but are still pursuing the best customers," said Chaouki.
TransUnion predicts by the end of 2012, just 0.69 percent of cards will be considered delinquent, down from a predicted 0.74 percent in the current quarter. The rate has wobbled in the last few years, peaking at 1.36 percent in the fourth quarter of 2007, then dropping and bouncing back up to 1.32 percent in the first quarter of 2009.
The figures reflect a shift in which debt payments consumers consider most important, largely because home prices fell so far.
Chaouki said the conventional wisdom before the Great Recession was that homeowners would put their mortgages first because of concern about their reputation and the emotional attachment involved in owning a home. But what has become clear as housing prices have continued to fall, he said, is that bill payment is far more practical.
"People were protecting their home equity," he said. Credit cards were relatively easy to come by in years past, he said, so when money got tight, it was an easy decision to default on cards and maintain house payments. Now it's common to owe more on a mortgage than a house is actually worth, but credit cards are harder to get. So consumers are being practical and protecting what is more valuable to them.
He said he expects the equation will shift again if housing prices rebound and people go back to building home equity.
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The Cities Where People Are Racing to Buy Homes
Mortgage Delinquency to Drop Sharply in 2012, Report Says
Metro movers index: 1.87
Median home price: $142,000
Home value decline from peak: -53.4%
Forecast change in home price through 2Q 2012: -11.4%
Like most of the state of Florida, the Orlando-Kissimmee-Sanford statistical area was hit hard by the housing crisis. More than one in five homes in the region is vacant, and more than half of all owned homes are now worth less than the mortgages on them. Real estate prices have declined 53.4% since the 2006 peak. By the second quarter of next year, Fiserv projects median home values will decline an additional 11.4%. For every person in the region looking for a home elsewhere, 1.87 people are looking at real estate in the area.
Click through to see what the median price buys in Orlando.
Metro movers index: 1.88
Median home price: $135,000
Home value decline from peak: -59.2% (8th biggest decline)
Unemployment: 13.6% (13th highest)
Forecast change in home price through 2Q 2012: -15.9% (2nd biggest decline)
Almost two out of every three homes with a mortgage in the Las Vegas-Paradise metropolitan area is underwater — meaning the home is worth less than the mortgage on it. This is, by far, the highest rate in the country, and it is 10 percentage points greater than the metro area with the second highest rate. Since the first quarter of 2006, the median home value has dropped nearly 60% in this statistical area, and it is expected to drop another 15.9% by the middle of next year. Nearly 40% of the homes sold in the area had previously been foreclosed upon.
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This cozy home is an economical choice whose low price sheds light on just how much of a hit Vegas took from the housing meltdown. The home offers mountain views, neat landscaping, ample lighting, access to a community pool and exercise facilities, marble kitchen countertops, a two-car garage, a backyard patio and an decent supply of appliances.
Metro movers index: 1.92
Median home price: $400,000 (9th highest)
Home value decline from peak: -39.9%
Forecast change in home price through 2Q 2012: -6%
The Oxnard-Thousand Oaks-Ventura area of California forms part of the Los Angeles suburbs, and is one of the wealthier regions in the country. It also features some of the most expensive and desirable retirement homes in the country. The median home value is $400,000 — the ninth-highest in the U.S. But even that high price is nearly 40% down from its peak in the second quarter of 2006. Foreclosures in the region are up 24% from last quarter. Many wealthy individuals close to retirement are looking to this area for second homes at bargain prices.
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Location: Ventura, Calif.
Sq Ft: 1,878
Ventura, Calif. is a tad more upscale than some other buying hotspots, so it follows that homes are costlier. This 1,878-square-foot single family features a garage, patio and fenced backyard.
Metro movers index: 1.97
Median home price: n/a
Home value decline from peak: -5.9%
Forecast change in home price through 2Q 2012: +2.7%
Fort Worth is unlike most of the areas on our list in some key respects. It is the only one of the 10 where home prices are expected to rise by the second quarter of next year, and the only city with an unemployment rate below the national average. The subprime mortgage crisis appears to have completely missed the Fort Worth area altogether. Home prices are down just 5.9% from their peak in 2009. According to Trulia, the biggest reason for the high rate of inbound searches is the large number of people looking to move from the nearby city of Dallas.
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This new traditional offers quite a bit of space for its price tag and enjoys some charming landscaping. The home shows just how much bang for your buck home buyers enjoy if they opt for this city in the Lone Star State.
Metro movers index: 1.99
Median home price: $205,000
Home value decline from peak: -50.2%
Forecast change in home price through 2Q 2012: -9.6% (19th biggest decline)
Homes in the West Palm beach area are worth less than half what they were before the recession. Many people have been unable to sell their homes, especially as values are projected by Fiserv to decline an additional 9.6% by the second quarter of 2012. Last year, West Palm Beach had more listings than all but a handful of major U.S. cities. However, inventory will likely be drawn down as foreclosures decline and people begin purchasing dirt-cheap real estate. Nearly one in four of the home sales in the region in the last 12 months was on a formerly foreclosed upon home.
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You can live on the water for just over $200K if you purchase this gleaming, tile-floored condo. The unit offers three bedrooms and access to facilities including an expansive swimming pool and tennis courts.
Metro movers index: 2.09
Median home price: $106,000
Home value decline from peak: -59.3% (7th biggest drop)
Forecast change in home price through 2Q 2012: -12.2% (6th biggest decrease)
There is arguably no single housing market with a worse outlook than southwest Florida, and Cape Coral-Fort Myers is the hardest-hit area. Housing prices here have already dropped 59.3% from their peak, and Fiserv projects a further decline of 12.2% by the second quarter of next year. According to Corelogic, 47% of the homes in the Cape Coral-Fort Myers area are worth less than their mortgages. Foreclosures have increased 35% in the last quarter. However, the long-term outlook may be better than these figures suggest. Real estate agents are giving “foreclosure tours” to show homes that are now worth 40% or less of what they were just five years ago, and the number of people looking for homes in the area is nearly double the number looking to leave.
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Metro movers index: 2.15
Median home price: $199,000
Home value decline from peak: -48.4%
Forecast change in home price through 2Q 2012: -9.2%
Just five years ago, the median home price in the greater Fort Lauderdale area was nearly $400,000. As of last quarter, it was less than $200,000, and still falling. Prices are projected to fall an additional 9.2% by the middle of next year. The area is, however, one of the most popular retirement destinations in the country, and many see the current lows as an opportunity to purchase a cheap second home.
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Metro movers index: 2.25
Median home price: $200,000
Home value decline from peak: -23.3%
Forecast change in home price through 2Q 2012: -1.6%
The Charleston-North Charleston area saw home prices drop nearly 23% since the 2007 peak. Nearly 10% of homes are vacant — one of the highest rates in the country. Charleston has been, and remains, a popular retirement destination. According to Trulia, most of the people looking at homes in Charleston are from other parts of the state and other southern cities.
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Sheesh, that's a lot of room for $200K! The home sits on a quarter-acre landscaped lot and enjoys vistas of a nearby river viewable from the home's backyard porch. The interior has vaulted ceilings and hardwood floors.
Metro movers index: 4.36
Median home price: $180,000
Home value decline from peak: -55.4% (14th biggest decline)
Unemployment: 13.4% (15th highest)
Forecast change in home price through 2Q 2012: -14.8% (3rd biggest decline)
This is one of the largest metropolitan statistical areas in the U.S. It also has one of the highest unemployment rates in the country — 13.4%. Poor economic conditions have led to a massive drop of over 55% since home prices peaked in 2006. Prices are projected to fall an additional 14.8% by the second quarter of 2012. The area has had massive foreclosures in the past few years, and nearly 40% of the homes sold in the last 12 months were previously foreclosed upon.
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Metro movers index: 6.03
Median home price: $170,000
Home value decline from peak: -51.4%
Forecast change in Home price through 2Q 2012: -6.5%
Last quarter, the rate of foreclosures in the North Port-Bradenton-Sarasota area jumped 57%, the third-greatest increase in the country. Since the first quarter of 2006, home prices have dropped 51.4%. Foreclosures are likely to increase for some time unless economic conditions improve, as 40.84% of regional homeowners owe more on their mortgages than their homes are worth. Further, prices are expected to drop an additional 6.5% by the second quarter of next year. For every person looking to leave the area, six others are searching for homes here.
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At $88 per square foot this home -- which may have given its builder quite the headache since it was constructed just prior to housing meltdown -- seems like quite a bargain. It offers the usuals and a two-car garage. Throw some palm trees into the mix too.