More Americans Paying Their Mortgages on Time - It’s a story you’ve heard countless times before – when the economy collapsed in 2008, the housing market did, too. Millions of Americans were laid off from their jobs and could no longer make their monthly home loan payments. It led to a record number of defaulted mortgages, foreclosures, and short sales. By the fourth quarter of 2009, nearly 7% of all mortgages nationwide were considered delinquent, meaning the homeowners were two or more months behind on their payments.
It’s a sad story, but according to recent statistics, borrowers are now doing a much better job of paying their mortgages on time. In fact, according to the credit reporting agency TransUnion, by the 4th quarter of 2012, only 5.19% of U.S. mortgages were delinquent – the lowest that number has been in four years.
So what can be credited for the turnaround?
Analysts say there are three things – the economy, the housing market, and time!
As the economy continues to recover, fewer Americans are losing their jobs. In fact, not only have the mass layoffs stopped, but some companies have actually started expanding their workforce. Job security has led to increased consumer confidence, prompting more buyers to purchase a new home.
The rebound in home sales and rising home prices are not only restoring confidence in the housing market, but it also provides some security for homeowners if they lose their jobs, get their hours cut back at work, or have to deal with some other unforeseen issue and suddenly can’t pay their mortgage.
But because the housing market is still recovering, the Federal Reserve has kept interest rates near record lows. That not only makes it easier for someone wanting to purchase a home to afford the payments, but has also allowed recently laid-off homeowners to refinance their mortgage or sell the home if they get behind on their mortgage.
The result? Fewer homeowners defaulting on their loans to the point where it's considered delinquent, or worse, losing their homes.
According to the TransUnion report, time has also played a part in the late-payment rate dropping in recent months. Mortgages given out in 2008 or earlier make up 60% of all of the home loans nationwide, and 90% of the nation’s delinquent mortgages are from the same time frame.
But after the housing market collapsed, lenders became stricter with their guidelines so it became harder for lower income Americans to get approval for a home loan. Therefore, most loans taken out since 2009 were given to borrowers that banks were confident would remain up-to-date on their payments. Also, most of the homes that were seized by banks as foreclosures and short sales have already been resold, so they no longer count as delinquent mortgage homes.
Economists at TransUnion say the 5.19% could actually be lower if the states that require a judicial process for foreclosures would get cases through the court system faster. In those states, some homes have been vacant for 3 years, but lenders are still waiting on paperwork from the courts saying the foreclosures are official.
Even at a 4-year low, the mortgage delinquency rate is still well above the 1-to-2% average historical range, indicating that many homeowners are still struggling to make their payments. But exactly how many of those delinquent homeowners actually still own the home, and how many have already vacated the property – but have yet to finish the foreclosure process – is unclear.
Either way, economists at TransUnion expect the national mortgage delinquency rate to continue to drop through the first quarter of this year, but say it will likely remain above 5%. That’s still higher than it should be, but it’s definitely a step in the right direction!
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