U.S. Mortgage Delinquency Rate Could Fall to 5% in '11

The percentage of U.S. consumers who are delinquent on their mortgages could fall to about 5% by the end of 2011, from an expected 6.2% at the end of this year, according to a leading credit bureau.

Even so, the proportion of consumers who are 60 or more days overdue on their mortgages would still be sharply higher than the historical range of 1.5% to 2%, according to TransUnion LLC, which analyzed about 27 million randomly selected consumer records from its database. The Chicago credit bureau first started tracking these statistics in 1992.

In data released Tuesday, TransUnion forecasts that mortgage delinquencies will fall to 4.98% in the fourth quarter of 2011 from 6.21% at the end of this year. According to TransUnion, this delinquency rate peaked at 6.89% in fourth quarter of 2009, as lenders tightened underwriting standards.

A decrease in mortgage delinquencies, traditionally a precursor to foreclosure, could boost the faltering recovery in the U.S. economy and the residential real-estate market.

"We think that the mortgage industry isn't out of the woods yet, but it's starting to move in a better direction," said Steve Chaouki, a group vice president in TransUnion's financial-services unit.

Protracted and high unemployment and depressed home values are contributing to the elevated delinquency rate.

TransUnion also forecast that credit-card delinquencies, an important gauge of future losses for lenders, will continue to fall, though not nearly as sharply. By the end of this year, the ratio of credit-card borrowers who are 90 days or more delinquent on one or more of their credit cards is expected to reach 0.75%—below the levels at the beginning of 2007, at the peak of the credit boom, according to TransUnion.

As credit quality improves, this delinquency rate is expected to fall to 0.67% by the end of 2011. Credit-card delinquencies are lower than mortgage delinquencies in part because credit-card lenders have more ways to control the potential losses, such as reducing customers' credit lines.