Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=147445
Story Retrieval Date: 2/9/2010 7:27:09 PM CST
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Courtesy of TransUnion
Five states are examples of increasing mortgage loan delinquency rates in the U.S., which have reached record highs.
Record number of mortgage delinquencies in the U.S.
by Jacquelyn Ryan
Nov 17, 2009
Mortgage rates continue to drop
As delinquency rates rise, mortgage rates themselves have been dropping.
In fact, Illinois mortgage rates for 30-year fixed-rate mortgages dropped 5 basis points Monday though the state continues to hold higher rates than the national average, according to Seattle-based Zillow Mortgage Marketplace.
Illinois 30-year fixed-rate mortgages fell 5 basis points to 4.78 percent from 4.83 percent on Monday, placing the state 12 basis points above the national average, which fell 1 basis point to 4.66 percent from 4.67 percent the same day.
The average Illinois borrower had a mortgage debt of $180,864 in the third quarter of 2009, up 0.4 percent from $181,599 in the year-ago period, according to data released Tuesday by TransUnion, a Chicago-based credit rating agency. The state placed 20th in the country for mortgage debt both quarters.
Nationally, the average borrower’s mortgage debt dropped 0.36 percent to $193,121 from the previous quarter's $193,811. Year over year, the debt increased 0.43 percent, from $192,287 in the third quarter of 2008, according to TransUnion
Last week, the national average for a 30-year fixed rate mortgage fell 9 basis points to 4.75 percent, the lowest it has been since Zillow began tracking the numbers in April 2008, from 4.84 percent in the previous week
Last week, Illinois’ 30-year fixed rate mortgages dropped 7 basis points to 4.88 percent over the previous week’s 4.95 percent, according to Zillow.
Fifteen-year fixed rate mortgages fell 4 basis points to 4.25 percent from 4.29 percent in the previous week. Rates for 5/1 ARM mortgages fell three basis points to 3.68 percent from 3.71 in the week prior, according to Zillow.
Zillow reported that mortgage request volume rose 29.1 percent last week over the previous week. Half of those were for purchase loans.
But lower rates don't necessarily mean the country is on-track for a new real estate bubble.
“Banks’ operating earnings losses have been a stiff price to pay,” said William Hummer, chief economist at Chicago-based Wayne Hummer Wealth Management. “They’ve learned a lesson. They aren’t lending as much so there’s not a bubble.”
Illinois fared only slightly better as the nation’s average mortgage loan delinquency rate rose to an all-time high in 2009’s third quarter, according to results released Tuesday by TransUnion LLC, a Chicago-based credit rating agency.
Illinois reported a 5.95 percent mortgage loan delinquency rate, only 30 basis points better than the country’s 6.25 percent record-high average, according to TransUnion. Illinois had the ninth highest rate in the country, up from 17th highest with a rate of 3.52 percent in the same period last year.
"It continues to point to the fact that we're not out of a recession...and the subprime mortgage crisis," said Thomas Mondschean, professor of economics at DePaul University. "It's one big economic problem."
Illinois' rate is "pretty consistent" with the national average, Mondschean added, noting that there is nothing specific to the state that makes it different from the country as a whole.
“There’s no certainty that mortgage foreclosures have peaked,” said William Hummer, chief economist at Chicago-based Wayne Hummer Wealth Management. “We’ve seen the worst, but we haven’t seen the end of it. We’ll have a somewhat painful year [in 2010].”
There are still subprime mortgages out there that have not yet reset to their higher rate. When they do, Mondschean said, there will inevitably be more people who cannot afford the ballooning payment and become deliquent on their loans.
The national mortgage loan delinquency rate average increased for the 11th straight quarter, but decelerated in the rate of increase for the third straight quarter. Year over year, the national borrower delinquency rate increased 58 percent to 6.25 percent, from 3.96 percent.
"While it continues to be a positive sign that the increase in mortgage borrower delinquency rates has slowed for three consecutive quarters, we have to keep things in perspective,” said F. J. Guarrera, vice president of TransUnion's financial services division in a prepared statement. “Delinquency rates are rising and expected to peak at record levels. Until the housing market can consistently demonstrate several months of home value appreciation and the unemployment rate improves, mortgage delinquency will likely continue to rise."
Mortgage delinquency rates are typically indicative of coming foreclosures.
But Hummer said he believes these numbers reflect the continuing effect of sub-prime mortgages and is not a precursor to a second wave of foreclosures that some economists believe is on the horizon.
Some speculate that, with a national unemployment number of 10.2 percent, people who previously may have been able to afford payments on mortgages have lost their jobs or income, forcing them to become delinquent on their loans.
According to TransUnion, the delinquency rate is the percentage of borrowers who are 60 days or more overdue on payments and is based on quarterly information from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 percent of credit-active U.S. consumers.
TransUnion forecast that the national mortgage loan delinquency rate will climb just short of 7 percent by the end of the year.
“TransUnion's 2009 third quarter national predictions were slightly above actuals, indicating in part that a slowdown in delinquency may be on the horizon,” said Guarrera. “Until the stabilization of housing prices makes solid traction across the U.S., TransUnion does not see national delinquency rates beginning to fall until the first half of 2010.”
Economist are also hopeful.
“Steps by the Fed and Treasury will provide some relief and mitigate the problems and mortgage debt. We’ll see a pay-off in 2011,” said Hummer. “But it’s going to be the slowest recovery since World War II.”
