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Fewer Homeowners Falling Behind on Mortgages

Written by Paul Esajian

The housing sector continues to show encouraging signs of recovery. Homes are appreciating at a rapid pace, generating more equity, and interest rates remain relatively low. These factors, in association with stable job growth, have enabled more homeowners to keep up with their mortgage payments in the third quarter of 2013. According to TransUnion, a credit-reporting agency, last quarter saw the fewest late mortgage payments over the previous five years.

Data provided by TransUnion, which dates back to 1992, acknowledged a 1.24% drop in the amount of late mortgage payments from this time last year. As of the third quarter of this year, 4.09% of homeowners were at least two months behind on their mortgage. Conversely, 5.33% of homeowners were at least two months late on their mortgages last year.

The latest rate provides homeowners with an encouraging outlook, as it is .23% lower than the previous quarter.

Shortly after 2008, when late mortgage payment rates were at their previous low, foreclosures began to increase in the wake of the downturn. Many homeowners were left with little to no equity, owing more on their mortgage than the value of their property. The nature of the economy and the housing market drove mortgage delinquencies higher. By the fourth quarter of 2009, approximately 7% of all homeowners were behind on their payments.

The period that followed is one in which we are all familiar with. The housing sector struggled to gain traction as the downturn impacted everyone in every market. However, with signs of the recession coming to an end, the rate of late payments on home loans has been steadily declining. This trend has been seen over the last five quarters. Perhaps even more importantly, however, was the simultaneous increase in both property sales and prices.

The rebound of the entire housing sector has been supported by stable job growth, relatively low interest rates and a distinct lack of available inventory. Each of these factors have made it possible for more homeowners to refinance, become current on payments or even sell their home.

Despite the encouraging signs, the current mortgage delinquency rate still rests above the 1 to 2 percent historical average. Due largely in part to the previous bubble, many homeowners are still struggling to pay their mortgage on time. The historically high rate, while currently declining, suggests that many home loans made during the housing boom remain unpaid. More than likely, these homes have yet to work their way through the foreclosure process.

Loans following the boom period, when restrictions were changed, are generally being paid on time. As more of the older loans listed on banks’ books get resolved, the overall mortgage delinquency rate should continue to decline, said Tim Martin, group vice president of U.S Housing for TransUnion’s financial services business unit.

“The new mortgages are still performing very well, at very low delinquency rates,” Martin said. “That’s why we’re expecting more improvement to come.”