Mortgage Delinquencies Could Drop 16% in 2012

NEW YORK (MainStreet) -- Bit by bit, the U.S. housing market is showing signs of vitality – although there’s really no way of saying if that vitality is of the sustainable variety.

For now, though, the news is getting incrementally better.

The latest example of that comes from credit ratings giant TransUnion, which released a study this week noting that the rate of mortgage delinquencies is in decline heading into 2012.

The numbers aren’t exactly champagne-popping worthy – TransUnion expects the rate of delinquencies to fall by 5% by the end of 2012 – but it is an indication that the housing market is mending, and heading in the right direction.

According to TransUnion, the national mortgage delinquency rate (defined as the ratio of borrowers 60 days or more past due on their mortgages) will fall from 6% to 5% from 2011 to 2012, suggesting that the housing market is healing, but at a glacial pace.

The firm does note that in the first quarter of 2012, mortgage delinquencies will spike upward, to 6.2%, before falling back down again for the rest of the year.

Overall, TransUnion says a healthier economy should contribute to lower mortgage difficulties for homeowners.

"Although house prices and unemployment will likely face continued pressure next year, this forecast calls for gradual improvements in the second half of 2012 to other key variables, like improving credit quality of new originations, consumer confidence and GDP, that will positively influence homeowners' ability and willingness to pay their mortgages," explains Tim Martin, a vice president in TransUnion's financial services business unit, in a statement. "If things go as expected, and there are no additional negative shocks to the U.S. economy and the average borrower's situation, mortgage delinquencies could fall as much as 16% in 2012 compared to 2011."

That 16% decline in mortgage delinquencies is light years better than the 50% increase the housing market saw between 2006 and 2009.

States with the biggest declines in mortgage delinquencies are some of the states hardest hit by the economic downturn. Arizona (at  -46.25%), Wisconsin (-45.52%) and Colorado (-40.34%) all should see big improvements in their housing markets, relative to the 2006-2010 period, while 12 states (and the District of Columbia) will see increases in mortgage delinquencies, although at a relatively low rate.

TransUnion also notes that housing isn’t the only area where consumer finances are looking stronger.

The firm reports that credit card late payment rates are also in decline, and are down to their lowest levels since 1996. TransUnion expects that trend to continue in 2012.

"Credit card delinquencies are expected to remain fairly steady in 2012 ranging between 0.69% and 0.76% -- levels far below those typically observed in the last 15 years," says Steve Chaouki, a vice president in TransUnion's financial services business unit. "In today's uncertain economy, consumers have found that credit cards are among their most valued assets due to the flexibility they provide. As a result, consumers have made a concerted effort to make on-time payments and maintain relatively low balances. In fact, credit card debt per borrower in the third quarter of 2011 stood at $4,762, approximately $1,000 less than the second quarter of 2009, the quarter in which the recession ended."

The TransUnion research is a real shot in the arm for the American consumer, who seems to be bouncing back from the dank, dark and dismal years of 2006 to 2010. The firm’s research shows that 2012 should be better.

In this economy, there are no guarantees. But at least the needle is pointed in the right direction – for the housing market, and for the U.S economy.

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