With the housing market improving, mortgage delinquencies are continuing to plummet for Q3 2013. TransUnion, which researches based on credit data, has reported that the mortgage delinquency rate is at 4.09 percent for Q3 2013, a 23.3 percent drop year over year, and the seventh straight quarter of decline. According to TransUnion, this will continue into Q4 2013.
The data is strong, but it could be masking the real problem. Mortgage delinquencies may be decreasing steadily, but the rate is still higher than it should be — about one to two percent higher than the historical range. The Q3 2013 rate is the lowest the delinquency rate has been since Q3 2008, and there were already problems stirring in the housing market at that time. In addition, there are fewer mortgages than there were. Despite 2.34 million new account originations in Q3 2013, up from 2.09 million from the previous year. TransUnion only recorded 52.31 million mortgages as opposed to 54.23 million from Q3 2012. In Q3 2008, there were 63.14 million, which was the high prior to the housing crisis.
Although there is also an additional decrease expected for Q4 2013, with a new year comes new challenges and adjustments in lending law. 2014 brings changes with the Dodd-Frank Act. The law is known more for Wall Street reform, but it takes a direct hit on mortgage lenders. This means changing regulations on lending practices, which will leave about 48 percent of potential home buyers who are able to obtain a loan in 2013 unable to do so in the coming year. Lenders will have to abide by stricter “ability to pay” regulations and servicers are prohibited from making the “first notice or filing” during the first 120 days of delinquency.
The effect that this will have on the mortgage delinquency rate, whether positive or negative, is still unknown. However, it’s important as the economy is improving to remain cautiously optimistic. After all, as we learned before, you never know when the rug is going to be stolen out from under you.