Mortgage Loan Deliquencies Move Up Toward All-Time Record

Mortgage loan delinquency (the ratio of borrowers 60 or more days past due) increased for the 11th straight quarter, hitting an all-time national average high of 6.25 percent for the third quarter of 2009, according to credit rating firm TransUnion. At the current rate, delinquencies would hit a one-year high this year.

Delinquencies are a good predictor of foreclosures, so TransUnion expects that figure to rise as well.

It is not a surprise, based on past data, that the areas hit the hardest by mortgage payment problems are Nevada and Florida.

The news can hardly be considered good news for the housing market or federal attempts to modify loans so that people can remain in their homes aided by lower monthly payments. Recent government studies show that many people with modified mortgages still lapse into default.

The delinquency rate may be caused in large part by rising unemployment, but that misstates the scope of the problem. Too many Americans still find that their mortgages are greater than the value of their homes. The “incentives” that these homeowners have to stay in their houses are limited, at least compared to the period from 2001 to 2006 when home prices were rising rapidly. These high prices allowed many mortgage holders to use their home equity as an ad hoc “piggy bank” to get inexpensive money. Those “second mortgages” are now defaulting at record rates as well.

There has been some hope that home prices are approaching a bottom. Default rates and foreclosures would say otherwise. The TransUnion data supports the theory that housing prices will fall well into 2010. And, if unemployment continues to march toward 11%, that will not be the end of it.

Douglas A. McIntyre