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Mortgage Loan Delinquency Rate Sees Dramatic Raise

December 8, 2008 by Alexis

A TransUnion report published Monday revealed that 53% of homeowners whose interest rates were modified earlier this year ended up defaulting within six months regardless of the adjustment. The report findings come from a surveyed 60% of those with primary mortgages, a tally that covers over 35 million homes worth a total of $6 trillion.

This is the 7th consecutive quarter in which mortgage loan delinquency has risen, and this quarter’s hit was especially hard. Delinquency rates in the third quarter of this year saw a 12% increase from second quarter figures. It was worst in the nation’s capital - Washington DC saw a 42.7% increase – and North Dakota, which took a 22.7% hit. Currently the national mortgage loan delinquency rate stands at 3.96%.

This news comes on the heels of a Mortgage Bankers Association report stating a record 1.35 million homes were foreclosed in the 3rd quarter of 2008, a 76% increase over last year’s figures. Currently, the percentage of foreclosed houses across the country stands at 2.97% and with unemployment rates rising, there’s no reason to believe that number can’t grow significantly higher.

To counter the fall, banks and agencies like the FDIC, Fannie Mae, and Freddie Mac have increased efforts to adjust loans so that borrowers aren’t paying more than 38% of their monthly income. Additionally, the Federal Reserve has recently announced a $600 billion plan to reduce mortgage rates for individuals looking to buy a new home to a historically low 4.5%, a figure that hasn’t even been considered by the Fed since the Great Depression – rates haven’t been lower than 5.37% in 45 years.

And while Lawrence Yun, chief economist of the National Association of Realtors, points out that lowering rates to 4.5% would likely spur nearly half a million home sales over the next year, this proposal has plenty of doubters. Ken Rosen is one of them. The chair of the Fisher Center for Real Estate at the University of California-Berkley spoke out against the proposal Monday, saying “the problem is not interest rates. It’s the availability of credit.”

Keith Carson, a senior consultant at TransUnion, interpreted the recent statistics by suggesting the mortgage delinquency rate won’t see any sort of leveling out for at least sixteen months. The problem, he says, is that this particular crisis is firmly tied into a series of other crises, most notably the credit crisis, simultaneously digging into our country’s infrastructure.

“Depending on the severity of the capital markets crisis, the ultimate outcome of the decline in the U.S. auto industry and the timing of a recovery in retail sales” said Carson before a Housing Conference in Washington, “we see the possibility of a flattening of mortgage delinquencies as the economy begins to stabilize and some sectors of the country begin to improve in the second quarter of 2010.”

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