TransUnion executives said they expect mortgages and credit cards to continue to see record or near record low levels of delinquencies and charge-offs.
The nationwide consumer data firm projected the national rate of mortgages more than 60 days late will decline to 3.12% by the end of the 2014 and reach 2.51% by the end of 2015.
Should the housing finance industry realize this projection, mortgage delinquency would stand at its lowest point since the third quarter of 2007, the firm said.
At its peak in the first quarter of 2010, the national mortgage delinquency rate was 6.93%.
“We expect the national mortgage loan delinquency rate to continue its decline throughout 2015, marking four consecutive years of quarterly decreases,” Steve Chaouki, head of financial services for TransUnion, said.
“We anticipate interest rates to remain relatively low next year and unemployment rates to continue their decline, both of which should help fuel home sales and improve consumers’ ability to pay,” he added. “Foreclosures are also expected to continue to funnel through the legal system in 2015, which will reduce delinquencies that have been lingering for some time.”
Chaouki said all of these factors will contribute to a further decline in mortgage delinquencies and there were key differences in the mortgage market between 2007 and 2014.
“While we project that delinquencies will approach prerecession levels, it should be noted that they will likely remain above the historic norm of 1½% [to] 2%; mortgage delinquency was rising even before the official start of the recession,” Chaouki said.
He added, “It is also important to note that the housing environment is far different now than it was when we last observed rates this low. Regulatory requirements and scrutiny, recent home value appreciation and consumers’ prioritization of payments have all changed the landscape of consumer mortgage lending.”
Subprime mortgage borrowers are a much small percentage of the overall housing finance market in 2014 than they were in 2007, Chaouki said. That year, subprime borrowers held roughly 10.3% of the mortgages originated that year, while in 2014, they held only 7.4% as of the third quarter.
“Even though several years have passed since the mortgage crisis, mortgage lending remains relatively tight,” Chaouki said. “In the last year alone [Q3 2013 to Q3 2014], we have recorded nearly one half million fewer subprime mortgage accounts than in the prior 12 months, even as the total number of mortgage accounts overall grew by about 500,000.”
On a state level, TransUnion projected that Nevada, Georgia, Maryland and Illinois will have the greatest drops in mortgage delinquency rates in the coming year, while only Idaho, North Dakota and Massachusetts will see higher delinquency numbers.
When it comes to credit card lending, TransUnion projected the rate of consumers delinquent 90 days on at least one credit card account to hit the near historic low of 1.52% by the end of 2014 and to end 2015 at 1.53%.
“The credit card industry has been performing exceptionally well for several years, and we do not expect this to change in 2015,” Ezra Becker, vice president of research and consulting at TransUnion, said.“While we have seen an uptick in subprime lending, the increases have been relatively small and to date have not had a material impact on either delinquency or debt levels.”
Becker added that lingering trends from the Great Recession have helped card issuers.
“We have previously presented studies that show the increased importance of credit cards for many households as a means of getting by during tough times—our research on the reversal of the payment hierarchy demonstrated clearly that many consumers were prioritizing card payments ahead of mortgage payments for several years post-recession,” Becker said.
That dynamic is winding down as home values improve and unemployment abates, but card lenders are still feeling the benefits of it, he noted.