Mortgage Delinquencies Continue to Rise

While the most broad measures of publicized economic data have showed positive readings over the past few months, indicating the massive stimulus and liquidity injections are likely working, we also want to keep an eye out for imbalances in those less reported pieces of fundamental data on the economy. For example, in a recent report, mortgage delinquencies of 60 or more days rose for the 12th straight quarter, hitting a record high 6.89% in Q4 2009, according to credit bureau TransUnion. Year-over-year, the delinquency rate is up about 50% from 4.58% delinquent in Q4 2008. When we are talking several trillion dollars in outstanding mortgage debt, 6.89% becomes a fairly large number.

TransUnion, one of the major US credit bureaus, conducts a survey of roughly 27 million all of its credit files from its total consumer base, or about one in every nine consumer files in its database of 250 million consumer files each quarter. States with the highest delinquency rates in Q4 2009 were led by Nevada with 16.19% and Florida with 14.93% delinquent.

Ironically, the bureau in December projected that delinquencies will drop nearly 3% by year-end 2010 to 6.39%; but that was when the year-end delinquency rate was expected to come in around 6.56% rather than 6.89%.

Part of the rise in delinquencies may come from a trend of more borrowers than ever choosing to pay down credit card debt before making mortgage payments. TransUnion found the share of borrowers who were delinquent on their mortgages but current on their credit cards rose to 6.6% in Q3 2009 from 4.3% in Q1 2008. At the same time, the share of borrowers that were delinquent on credit cards but current on mortgages slipped to 3.6% from 4.1%. It seems like more people are willing to default on mortgage debt than credit card debt.

In addition, the delinquency rate on commercial mortgage-backed securities (CMBS) loans posted the largest single monthly increase on record. US CMBS loans are also transferring to special servicing status faster and greater than ever before.

The delinquency rate on CMBS loans rose by 1/2% in January, driving the total rate to 5.42% in February, according to a report by Moody’s Investors Service. The new rate marks the largest increase in the delinquency rate, by dollars and basis points, as recorded in the current downturn by Moody’s. (See chart below)




So while the broadest measures of economic statistics are showing better numbers and economic improvement, there are many cross currents. The economy does have some underlying fundamental weakness in certain areas, such as mortgages delinquencies, which, if the trend continues, could impact the degree and pace of economic recovery.