A better forecast on mortgage, credit delinquencies

After three straight years of dramatic leaps in mortgage delinquencies, the tide should finally turn next year, according to a new forecast by TransUnion, the credit-reporting company. The company also expects credit-card delinquencies to decline through most of 2010.

TransUnion projects that the portion of U.S. homeowners who are at least two months' late in their mortgage payments will drop 3 percent by the end of 2010, dipping to 6.39 percent from the current quarter's estimate of 6.56 percent.

Since 2006, the nation's mortgage-delinquency rates have climbed an average of 50 percent a year, TransUnion said. In the last quarter of 2006, the rate stood at 1.94 percent - close to its historical average, TransUnion vice president F.J. Guarrera said in an interview.

TransUnion is expecting a more dramatic decline in some states, including Pennsylvania, as well as continued increases in the states hit hardest by the housing bubble's collapse, Guarrera said.

In Pennsylvania, Guarrera said TransUnion expected mortgage delinquencies to drop 11.6 percent, from 4.25 percent in the current quarter to 3.76 percent at the end of 2010.

By contrast, Guarrera said Florida's delinquency rates were expected to near 17 percent by the end of next year.

"It's absolutely staggering to see that nearly 2 in 10 homeowners in Florida will have missed two or more payments on their mortgages," he said.

TransUnion's projections are based on an annual study of the credit files of 27 million people, randomly chosen from files it maintains on 270 million U.S. consumers.

Guarrera said a variety of factors were contributing to the slow turnaround in mortgage delinquencies, including what economists believe has been a return to tentative growth in an economy mired in recession since December 2007.

Guarrera said limited data made it impossible to gauge the role of government efforts in bolstering the trend. Since early this year, the Obama administration has been pushing mortgage lenders to help struggling homeowners through its Making Home Affordable program.

The program offers incentives to lenders if they adjust loan terms to reduce payments to 31 percent of a homeowner's monthly income. Last month, the Treasury Department said 650,000 loan modifications were under way, although the vast majority were still in a trial period.

Guarrera said the trends in mortgage and credit-card delinquencies dovetailed with increases in savings rates, showing that "consumers have become fiscally more responsible" during the recession, the longest downturn since the Great Depression.

Mark Zandi, chief economist at Moody's Economy.com, said the TransUnion projections were in line with his forecasts, which he said showed unemployment peaking and housing prices reaching a bottom by the third quarter of next year. He said both factors also drive delinquency rates, along with borrowers' efforts to be more prudent.

But Zandi warned against reading too much into any particular data because of the confusing ways that they sometimes interact.

For instance, Zandi said credit-card delinquency rates were buoyed by a sharp drop in the number of noncorporate cards in circulation, down to 325 million from a peak of 425 million in March, according to Equifax data. And Zandi said last month's dip in the unemployment rate was driven largely by a rare drop in the number of people seeking work, which typically rises about 1 percent a year.

"The labor force is declining, which is incredibly unusual," Zandi said. "Once the labor force starts growing again, we'll see the unemployment rate start to rise again." He now expects joblessness to peak at 10.6 percent during the third quarter of next year.

But Zandi also sees hopeful signs in delinquency rates, including a recent rapid fall in total delinquencies in household credit accounts.

Zandi said that according to Equifax, total delinquencies peaked in March at 23.05 million. By November they were below 20 million - a reflection, he said, of "a stabilizing economy."