As a result of recent gains in the economy, mortgage delinquency rates significantly declined in March, but despite the improvement, the rate was still elevated in comparison to the housing market's peak.
Mortgage delinquencies totaled just under $500 billion in March, according to a recent report from Equifax and Moody's Analytics. This is the lowest the total dollar value of delinquencies has been since January 2009.
Meanwhile, mortgage records indicate there were an estimated 49.5 million outstanding home loans during the month, which is an 11 percent decrease from when the total peaked in March 2008 when there was roughly 55 million delinquent mortgages
"The residual effect from the recession and housing bust continues to be an obstacle for both lenders and borrowers in the housing market," said Equifax chief economist Amy Crews Cutts. "We're seeing effects of the economic recovery within existing accounts in the form of fewer delinquencies and foreclosures, but not a substantial amount of new activity as home sales and resulting new home financing fail to keep pace with payoffs and foreclosures."
Majority of delinquent loans from market's peak
Nearly 71 percent of the mortgage that were delinquent March were originated between 2005 and 2007, the report found. Since this was at the housing market's peak, a number of experts claim that so many of these loan have defaults because these borrowers purchased property when prices were at a high as a result of the real estate bubble. However, once this bubble burst, so many of these borrowers were saddled with negative equity that they found it difficult to pay their monthly home loan payments.
Mortgage rates hit new lows
As the delinquency rate edged lower, it could be a result of a greater number of underwater borrowers capitalizing on affordable mortgage rates to restructure their loans into more affordable terms. During the week ending May 3, the average rate for a 30-year fixed-rate mortgage fell to just 3.84 percent. A week earlier the rate averaged 3.88 percent. A number of shifting economic indicators are believed to be responsible for the change.
"Signs of slowing economic growth and inflation remaining subdued allowed yields on Treasury bonds to ease somewhat and brought most mortgage rates to new all-time record lows this week," said Freddie Mac vice president and chief economist Frank Nothaft.
With the housing market entering its peak season for buying activity, this decrease could not only provide affordable solutions for current borrowers looking to refinance, but could also provide a number of options for households looking to make the transition to homeownership.