Late payments on mortgages show surprising 1Q drop

The rate of late mortgage payments dropped in the first quarter for the first time since 2006, according to credit reporting agency TransUnion.

The 60-day delinquency rate slipped to 6.77 percent, from 6.89 percent in the fourth quarter of 2009. That was the first decline after 12 consecutive quarters of steady increases, TransUnion said.

The first-quarter figure still represents a substantial jump from a year ago, when delinquencies were at 5.22 percent. But FJ Guarrera, vice president in TransUnion's financial services business unit, said it's still good news.

"To see it turn down is a very, very strong sign," Guarrera said, adding that positive economic indicators like Friday's increase in job creation make the outlook even better.

"We cannot characterize it as a trend yet, but we anticipate that things will continue to improve." TransUnion expects another decrease for the current quarter, and then for the delinquency rate to stabilize for the rest of the year.

TransUnion measures the rate using mortgage payments that are 60 days late, or two skipped months. The figure is considered an important indicator of likely foreclosure, because of the difficulty someone in financial distress would have coming up with three payments to bring their mortgage current.

The company forecasts the delinquency rate will be about 6.3 percent by the end of the year.

In the first quarter of 2011, TransUnion expects late mortgage payments to start a significant decline. By the end of next year, the rate could be close to 5 percent, Guarrera said.

Historically, mortgage delinquencies hovered around 1.5 or 2 percent.

Delinquency rates remain the highest in the four states hit hardest by the housing market collapse: Nevada, at 15.98 percent, Florida, at 14.65 percent, Arizona, at 10.94 percent and California, at 10.68 percent.

TransUnion said the rate could top 18 percent in Florida by the end of the year. Nevada and Arizona will likely remain close to their current rates through 2011.

"I really do believe it will take longer in those states for improvement," Guarrera said. These states were left with a bigger surplus of housing that remained unsold during the recession. The surplus will likely keep pressure on housing prices, and make it harder for homeowners to refinance or get out from under mortgages that exceed the value of their homes. That increases the temptation to walk away from a mortgage and let the house slip into foreclosure.

California could see a slight decline in delinquencies by the end of 2010.

Delinquency rates remain the lowest in North Dakota, at just 1.76 percent, and South Dakota, at 2.44 percent.

The figures are culled from about 27 million randomly sampled credit files in TransUnion's database, representing about 10 percent of U.S. consumers who have active loans outstanding.

While the overall news is positive, Guarrera said it's still difficult to predict what might happen in coming months. "There's still a lot of uncertainty in the housing market," he said. "There's still a lot of delinquency out there, and home values have not started to improve."