TransUnion released its annual forecasts Wednesday on two primary consumer credit variables - credit card and mortgage delinquency rates.
Credit card delinquency rates (the ratio of bankcard borrowers 90 days or more 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.
Between 2000 and 2011, the credit card delinquency rate has averaged 1.24% during the fourth quarter. In the 51 quarters since Q1 2000, the creditcard 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,” said Steve Chaouki, group vice president in TransUnion’s financial services business unit. “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.
The national mortgage loan delinquency rate (the ratio of borrowers 60 or more days past due) is projected to decline to 5.06% by the end of 2013 from an estimated 5.32% at the conclusion of 2012. 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.
For credit cards, the latest 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 on a scale of 501-990) was 29.55% in the second quarter of 2012, slightly higher than one year ago (29.28% in Q2 2011), and much higher than the 23.86% observed in Q2 2010.
Credit card debt per borrower, which has been relatively low since 2010, is expected to rise in the next year 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. Average credit card debt per borrower peaked at $5,776 in Q1 2009.
“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," Chaouki says. "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.”
Thirty-nine states and the District of Columbia are projected to see credit card delinquency increases in 2013 with only six experiencing declines. States expected to see the largest credit card delinquency increases in 2013 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.
On the housing front, the mortgage delinquency rate peaked in Q4 2009 at 6.89% after rising 12 consecutive quarters from its 1.94% mark in Q4 2006. The 255% increase in those three years was unprecedented in its extreme rise.
Nearly three years after the peak in mortgage delinquency rates, as of Q3 2012 (the latest actual data available) mortgage delinquencies have only dropped 21% to 5.41%. If the TransUnion forecast holds true for 2013, the rate would have only dropped about 27% in four years.
“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. “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 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,” said Martin. “For example, our analysis shows the delinquency rate would fall to around 2.5%, 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.”
TransUnion is projecting the largest mortgage delinquency rate declines to happen in Nevada (-18.62%), Minnesota (-13.58%), California (-12.14%) and Arizona (-11.61%). Other states that were most negatively impacted by the mortgage crisis, such as Florida (-8.39%), Georgia (-9.19%), New Jersey (-4.95%) and New York (-7.67%), also are expected to see declines.
TransUnion’s Trend Data database includes 27 million anonymous consumer records randomly sampled every quarter from TransUnion’s national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance.
Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels. For the purpose of this analysis, the term “credit card” refers to those issued by banks.