Pace of Mortgage Delinquencies Slows

Mortgage loan delinquencies increased for the 10th straight quarter from April to June, hitting an all-time high of 5.81 percent of all home loans. However, the rate of increase slowed for the first time since the recession began, suggesting that the mortgage market may be stabilizing, according to the credit reporting company Transunion, which released the report.

Delinquencies in the second quarter of 2009 were up 11.3 percent from their 5.22 percent level in the first quarter of the year, compared to a nearly 16 percent increase the previous quarter. Transunion defines delinquencies as mortgages that are 60 days or more past due.

Overall, mortgage delinquencies, which are an advance indicator of foreclosures, were up 65 percent from one year before, in the second quarter of 2008.

Mortgage delinquency rates were highest in Nevada (13.8 percent) and Florida (12.3 percent), and lowest in North Dakota (1.5 percent), South Dakota (2.1 percent) and Alaska (2.4 percent). The greatest rates of increase in mortgage delinquencies compared to the first quarter were in three states that have so far seen relatively low rates of delinquencies and foreclosures, Wyoming (up 27.8 percent), Utah (up 22.2 percent) and Hawaii (up 21.7 percent).

On a related front, the percentage of homes with negative equity, i.e., those in where the property is worth less than the balance on the mortgage, declined slightly in the second quarter, according to new figures from First American Core Logic, edging down to 32.2 percent of all mortgaged U.S. properties, from 32.5 percent in the first quarter of the year.

The reduction was attributed to a slowing in the rate of housing price declines, which have been the primary factor in homeowners becoming "underwater" on their home loans in the current recession. Negative equity is another factor that is strongly correlated with foreclosures.

Homes with negative equity were heavily concentrated in just a few states, with Nevada, Arizona and Florida accounting for half of all borrowers in negative equity. Michigan and Florida filled out the next two spots.

Two-thirds of all borrowers were reported underwater in Nevada, with roughly half in Arizona, Florida and Michigan, and two-fifths in California.

F.J. Guarrera, Transunion Vice President of financial services, said a variety of economic indicators such as these suggest the mortgage market may be stabilizing, citing also a rise in consumer confidence and a slowing of the increase in unemployment figures. He said the outlook was encouraging, particularly given that mortgage delinquency statistics are considered a trailing economic indicator; that is, they tend to lag other gains in the economy.

However, Guarrera said Transunion does not expect delinquency rates to begin to improve until the first half of 2010, suggesting that foreclosures will continue to rise until at least that time as well.