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Mortgage delinquency rates to drop next year?

By: 18 December 2011 One Comment

TransUnion – the third largest credit bureau in the United States – predicts that mortgage delinquency rates will fall in 2012.

The delinquency rate is defined as the number of borrowers that are 60 days or more behind on their mortgages. TransUnion predicts that rate will hit 6 percent in the first quarter of 2012 and then drop to around 5 percent by the end of the year. According to TransUnion, the delinquency rate peaked in the fourth quarter of 2009 at 6.89 percent.

While a falling delinquency rate comes as good news, it’s not terribly surprising. The so-called subprime mortgage crisis got a lot of the blame for the delinquency and foreclosure mess and those were being written in earnest through at least part of 2007. Remember that problems with subprime mortgages became obvious in February of 2007 when HSBC – a major lender – wrote off $10.5 billion in bad debt backed by poorly performing subprime mortgages.

During 2007, the subprime mortgage industry all but died with around 100 lenders shutting down, merging with other financial institutions or being sold.

What’s relevant about this minor history lesson? Subprime mortgages typically had very attractive initial terms that borrowers could generally pay easily. Generally, those initial terms expired in five years and borrowers saw their mortgage payments shoot up – sometimes by hundreds of dollars – overnight. In general, those new, higher payments were directly related to higher interest rates on adjustable rate mortgages.

Given that some lenders were writing subprime mortgages through at least part of 2007, it’s no shock that delinquency rates will likely drop as soon as we’re outside that five-year window in which terms reset and buyers can either make higher payments or seek alternatives.

In that context, then, it will be more intriguing to see a couple of things. First of all, what will be done to avoid something similar to the subprime lending crisis in the future? We’ve seen a good number of private and government initiatives to avoid such a mess again, but how effective will those reforms be?

Second, what about those people who have been paying their mortgages all along and are starting to have trouble keeping up with them? One fact that is often left out of the discussions about foreclosures and delinquency rates is that most borrowers – the overwhelming majority of them, in fact – are paying their mortgages on time.

Still, those that do run into trouble may find more help available than they realize. We’ve talked about the reforms to the federal Home Affordable Refinance Program (HARP) in this column a time or two and a good number of lenders do have refinancing options and other tools available to help borrowers.

Those borrowers who are in trouble with their home loans or fear trouble may be approaching, then, are advised to visit their local mortgage lenders and discuss what options are available. Those local lenders stay up on the latest federal programs and – of course – their own institutions’ available programs and ought to be the first ones borrowers call when worried about how to make their mortgage payments.

Home Sweet Home is written by Ethan C. Nobles and is sent weekly to publications throughout the Natural State on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email =

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