Mortgage Delinquency is Down, Credit Delinquency is Up

Mortgage delinquency rates are down, credit delinquencies are up. CoreLogic reports 30-day-plus delinquency is the lowest it’s been in over a decade.

It’s a good news, not-so-good news situation. First, the good news: More people are paying their mortgages on time. Unfortunately, credit delinquencies are up as more people are having trouble getting their credit card debt paid.

Let’s look at mortgage loan performance data first: The 30-day-plus mortgage delinquency rate dropped to 4 percent in the first quarter of 2019, the lowest it’s been in well over a decade, according to the latest Loan Performance Insights report by CoreLogic.

“Income growth, home appreciation and sound underwriting have pushed [mortgage] delinquency rates to their lowest level in 20 years,” said Frank Nothaft, Chief Economist for CoreLogic.

Mortgage Delinquency Rates

Serious mortgage delinquencies, defined as mortgage loans that are 90 days or more past due, including mortgage loans in foreclosure, decreased year-over-year in all states except for North Dakota, where serious mortgage delinquencies stayed the same.

The number of mortgages transitioning from current to 30-days past due remained at 0.8 percent in January 2019, unchanged from January 2018 and well below the 2 percent peak during the financial crisis in 2008. The 30-to-60-day delinquency rate rose from 14 percent in January 2018 to 14.9 percent in January 2019. However, the 60-to-90-day delinquency rate fell from 26.5 percent to 24.9 percent over the same time period.

Consumer Credit Debt & Delinquencies

“Low delinquency rates on home mortgages are a contrast to the rising delinquency rates on consumer credit,” said Nothaft. “While home mortgage delinquency rates are at, or are near, their lowest levels in two decades, delinquency rates for auto and student loans are higher now than they were during the early and mid-2000s.”

In a separate report, CoreLogic notes student loan debt has grown sixfold since 2003, tripling its share of consumer debt from 12 to 36 percent. Student loan debt ballooned to $1.5 trillion at the end of 2018. Student loans have had 90-day delinquency rates above 10 percent since 2013, much higher than the rate before the Great Recession, which was roughly 7 percent.

Auto loans have maintained a 30 percent share of consumer debt since 2003. Currently, the U.S. has $1.3 trillion in outstanding auto debt. CoreLogic points to an extensive volume of subprime financing in auto loans to explain the deterioration in loan performance. In 2018, 20 percent of borrowers had a credit score below 620, and nearly one-third were below 660. It’s a stark comparison to home mortgage borrowers, where only one percent of borrowers had a credit score below 620 and only 8 percent had credit scores below 660.

According to CoreLogic, “High delinquency rates on consumer credit could slow consumption spending and affect home buying in the coming year, posing a risk to economic growth, household financial health and lender portfolios.”

How to Avoid Consumer Credit Delinquency

If you want to build your credit history and raise your credit score, it’s important to pay all of your bills on time and, preferably in full. If you can’t pay all of your bills at the end of the month, you should try to make the minimum payment, so that at least your creditors can report you as paying on time.

When it comes to consumer credit, like your credit cards, follow these steps so that you have a better understanding of what you owe and how to get it paid off:

Use calculators to determine what the down payment, monthly payment and the amount paid towards interest over the life of the loan will be. Whatever you do, don’t base your budget off of the loan amount that’s been pre-approved. Getting approved for a loan doesn’t mean you can afford to pay it back, it means you’ve met the lender’s minimum requirements for funding and nothing more.
Stick to your spending budget. Buying something new is exciting and everyone is determined to get the best deal. Sales representatives have caught onto this and often offer flashy promotions, discounts, or ‘free’ add-ons to lure you into spending more than you intended.
Setup automatic payments or set an alert to remind you to pay on time. Late payments (and the fees that get tacked onto the amount you owe) add up fast and can easily derail your repayment plan. Avoid the threat of late payments by setting up automatic payments, but make sure to monitor the statements to determine if you need to increase the payment to knock down the principal balance. Whenever possible, make more than the minimum payment because the loan will be paid off sooner and you’ll pay less interest on it.