Mortgage delinquency rates to remain high while credit card rates to drop

Credit Cards and Mortgages

On Wednesday, TransUnion released its annual forecast on two primary consumer credit variables – mortgage and credit card delinquency rates.

The national mortgage loan delinquency rate – or the ratio of borrowers that are 60 or more days past due – is projected to decline to 5.06 percent by the end of 2013 from an estimated 5.32 percent this year.  TransUnion forecasts mortgage delinquencies, a statistic generally considered to be a precursor to foreclosure, will decline in 34 states and the District of Columbia with only 13 states experiencing increases.

“As house prices and unemployment slowly improve, TransUnion’s forecast indicates that the national mortgage delinquency rate will gradually drop throughout 2013,” said Tim Martin, group vice president of U.S. housing in TransUnion’s financial services business unit, in a prepared release. “While we are encouraged by the direction of the forecast, we would have hoped for a projection that called for a more substantive drop in delinquencies.  If the pace of improvement does not pick up, it will take a very long time to get back to ‘normal’ delinquency rates.”

The mortgage delinquency rate peaked to 6.89 percent in Q4 2009 after rising 12 consecutive quarters from its 1.94 percent mark in Q4 2006. The 255 percent increase was unprecedented in American history.

Based upon the most recent data, the peak in mortgage delinquency rates has dropped 21 percent to 5.41 percent in Q3 2012.

Should TransUnion’s forecast hold true in 2013, the rate would only have dropped about 27 percent over a four year period.  This is still well above the “normal” delinquency rate range of 1.5 to 2 percent.

“The slow improvement pace we are experiencing right now seems to be less about new borrowers not being able to make their payments and more about existing borrowers who have been delinquent for a very long time,” stated Martin. “For example, our analysis shows the delinquency rate would fall to around 2.5 percent, or pretty much normal, if we simply took borrowers who haven’t made a mortgage payment in over a year out of the calculation.  By comparison, pre-recession, it was unusual for a borrower to go more than 6 months without either being able to cure their situation or go through the foreclosure process.”

Credit Cards

Credit card delinquency rates – or the ratio of bankcard borrowers that are 90 or more days delinquent on one or more of their credit cards – are expected to remain relatively low throughout 2013, increasing slightly from 0.83% in Q4 2012 to 0.87% in Q4 2013.

From 2000 until 2011, the credit card delinquency rate has averaged 1.24% during the fourth quarter.  In the 51 quarters since Q1 2000, the credit card delinquency rate has only been below the 0.90% threshold 10 times.

“The credit card delinquency rate continued to remain low in 2012 after reaching its lowest level since 1994 in the second quarter of 2011,” stated Steve Chaouki, group vice president in TransUnion’s financial services business unit, in a prepared release. “We expect much of the same in 2013 as consumers have come to rely on their credit cards for liquidity with continued high unemployment rates and a stagnant economy.

“It should be noted that we have seen credit card delinquencies drift somewhat higher in the last year.  Some of this can be attributed to the fact that credit card delinquencies were so low, that at some point they were bound to increase.  A more significant factor may be that credit card originations have been increasing in the last few years, and with that increase we have seen non-prime borrowers receive not only more credit cards, but also comprise a larger share of new credit cards.”

The latest credit card origination data from TransUnion points to an increase in non-prime credit card borrowers.  The share of non-prime, higher-risk originations – with a VantageScore® credit score lower than 700 – was 29.55 percent in Q2 2012. This was slightly higher than last year with 29.28 percent in Q2 2011and much higher than the 23.86 percent observed in Q2 2010.

Credit card debt per borrower – which has been relatively low since 2010 – is expected to increase from its current $4,996 level (as of Q3 2012) to $5,050 in Q4 2012 and $5,446 at the end of 2013.  This would be the highest credit card debt level since 2009. In Q1 2009, the average credit card debt per borrower peaked at $5,776.

In 2013, thirty-nine states and the District of Columbia are projected to see credit card delinquency increases in with only six states experiencing declines.  

States expected to experience the largest credit card delinquency increases next year include Ohio (11.84%), Missouri (8.33%) and North Dakota 7.50%). However, all of these states still remain below their historic averages. The largest declines in 2013 are expected in Rhode Island (-7.59%), Montana (-5.88%) and Georgia (-5.21%).

TransUnion’s forecasts are based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates and real estate values. The forecasts would change if there are unanticipated shocks to the global economy affecting recovery in the housing market, or if home prices unexpectedly continue to fall.

The most recent mortgage and credit card delinquency data for the nation can be found at www.transunion.com/trenddata. 

Protect Yourself from Credit Repair Scams

While the economy has been showing some signs of improvement, your good name and reputation is becoming more important within the community. Creditors have tightened their guidelines effectively barring millions of Americans from borrowing money.

Mortgage lenders, auto finance companies, credit card issuers and banks have all raised the bar. Borrowers with low FICO scores can expect to be denied or to pay significantly higher interest rates than those with excellent histories.

Long gone are the days of obtaining credit, goods, benefits, services and/or employment with a 620 score. In most instances, a consumer will be denied if they maintain a credit score lower than 740. Even those with high credit scores have experienced closed credit card accounts and equity lines.  When an account has not been closed, credit limits have been reduced to the current balance due. 

The terms credit repair, credit restoration or credit rehabilitation are somewhat synonymous. Those with bad histories cannot afford to ignore the potential benefits of credit repair. In today’s economy, a strong FICO score is more important than ever. 

Approximately 78% of credit profiles in the United States contain some sort of error or omission materially impacting credit worthiness.  Absent self-help and the “do-it-yourself” approach, a consumer may hire a credit service organization (CSO) in the restoration of their good name and reputation within the community.

Most – but not all – CSO’s specialize in the restoration of consumer credit worthiness as well as identity theft issues.  Assuming that the credit repair company is performing within the law, they utilize laws enacted by Congress to dispute negative, erroneous, obsolete, and/or fraudulent information contained within your consumer credit profile.

Utilizing the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Fair Credit Billing Act, and the Fair and Accurate Credit Transactions Act, a reputable CSO will assist in the submission of disputes electronically, verbally and in writing to the Equifax, Experian and Trans Union consumer reporting agencies.  Disputes are also submitted to creditors, collection agencies, third-party record providers and/or state, federal, local, and private regulatory authorities.

Unlike most credit repair clinics that submit the same written dispute letters monthly, a reputable CSO will have devised a strategy whereby disputes are submitted electronically, verbally and in writing over a long period of time to the credit reporting agencies, creditors, collectors, and third-party record providers reporting negative, inaccurate, obsolete and/or erroneous information.

Keep in mind that anything a CSO can do – you can do yourself for little to no cost. With that said, a reputable organization should have an edge as they will possess the education, knowledge and a source proven method that is generally unknown to the average consumer. 

A reputable CSO should have a provable track record of results as well as the ability to modify and/or remove erroneous or inaccurate judgments, liens, foreclosures, bankruptcies, short-sales, student loans, inquiries, derogatory tradelines, personal identifiers and other transient data from a consumer’s credit report. Although the credit restoration process can take anywhere from 30 days to six months, most individuals should see some results within the first 45 to 60 days.

Credit repair, credit restoration and/or credit rehabilitation is as legal as pleading “not guilty” in a court of law. With that said, one must understand that most CSO’s are not law firms and that their employees may not be licensed to practice law.  As such, even a reputable CSO cannot provide legal advice nor may they represent a consumer before any court or in any legal proceeding.  In the event that legal representation is required, the credit repair company should provide an appropriate attorney referral for consultation.

Under the Fair Credit Reporting Act, as modified by the Fair and Accurate Credit Transactions Act, consumers are entitled to a free copy of their credit report under a narrow set of circumstances.  If you have been denied credit, goods, benefits, services, insurance, and/or employment, the credit reporting agencies of Equifax, Experian and Trans Union are statutorily mandated to provide a copy free of charge.

Equifax can be contacted at (800) 685-1111 or www.Equifax.com; Experian can be contacted at (888) 397-3742 or www.Experian.com; and Trans Union can be contacted at (800) 916-8800 or www.TransUnion.com. Be sure to prompt that you were denied credit when requested to do so.

Absent these exceptions, consumers are entitled to one free “annual credit report” per year. Credit scores are not included with any of the “free credit reports” provided by the national credit reporting agencies.

For your free annual credit report, contact the central source at 877-FACT-ACT (877-322-8228) or www.AnnualCreditReport.com. Follow the voice prompts and obtain your credit report for review.

When self-help or the “do-it-yourself” approach is not feasible and you decide to hire a CSO to restore your credit, be sure to check them out.  While the majority of credit repair clinics are scams, a few good ones do exist.  Consumers can check out a credit service organization through their state Attorney General, the Federal Trade Commission at www.ftc.gov or through the Better Business Bureau at www.BBB.org.

South Florida Credit Scores Drop in September

Credit rating agency Experian released Wednesday its second-annual “State of Credit” list of cities with the highest and lowest credit scores.

The study found that the cities with the worst average credit score were concentrated in the South, while those with the highest average score were centered in the upper Midwest.

According to CreditKarma.com, the credit scores of consumers in the Miami metropolitan statistical area dropped in September as they continued racking up significant personal debt.

The average credit score in the Miami area was 649 in September, down from a previous low of 652 in August. The trend was the same statewide, although other Floridians seemed to maintain better credit scores. The average Florida credit score was 654 in September, down from 657 in August.

The Sunshine State ranked 35th for credit score averages nationwide. California residents had the best average credit score, at 682, while those in Mississippi ranked at the bottom, at 626.

CreditKarma found that consumers in South Florida piled on debt in three significant categories.  In September, they had an average mortgage debt of $199,701, student loan obligations of $32,254, and credit card balances of $5,548.  This is an increase of 4 percent, 2.8 percent and 1.4 percent, respectively, from the previous month.

The study also found that consumers in the Miami area ranked higher in mortgage and student loan debt, but had less credit card debt than others across the country.

Obtaining credit reports and correcting credit reporting errors is something for every consumer to seriously consider.  This is especially so in tough economic times.

Under the Fair Credit Reporting Act, as modified by the Fair and Accurate Credit Transactions Act, consumers are entitled to a free copy of their credit report under a narrow set of circumstances. 

If you are denied credit, goods, benefits, services, insurance, and/or employment, the credit reporting agencies of Equifax, Experian and Trans Union are statutorily mandated to provide a copy free of charge.  Absent these exceptions, consumers are entitled to one free “annual credit report” per year. 

Equifax can be contacted at (800) 685-1111 or www.Equifax.com; Experian can be contacted at (888) 397-3742 or www.Experian.com; and Trans Union can be contacted at (800) 916-8800 or www.TransUnion.com. 

For your free annual credit report, contact the central source at 877-FACT-ACT (877-322-8228) or www.AnnualCreditReport.com.  Follow the voice prompts and obtain your credit report for review.