Could a pre-recession level of mortgage delinquencies be just over the horizon?

Although there were certainly warning signs, the dominant perspective in early 2008 was not that the housing market was about to experience a collapse. Analysts have been waiting for years for the market to finally get back to that point, and according to new figures from Equifax, it may have finally arrived, at least regarding first mortgages, which fell by more than 24 percent year-over-year.

Equifax chief economist Amy Crew Cutts told DS News that not only are first mortgage delinquencies falling, severe delinquencies may reach pre-recession levels in one year's time.

"Generally speaking, transitions to deeper stages of delinquency are slowing, so for example, fewer loans that are now 30 days late are transitioning to 60 days late," Crew Cutts said.

With serious delinquencies reaching a five-year low — about 29 percent less year-over-year — it's clear why Equifax anticipates a continued recovery. Rising home prices and an improved labor market are also positive indicators.

These figures run somewhat contrary to the most recent findings of Fitch Ratings, whose quarterly FFI found that both the performance of mortgages and the broader economy had dropped. The assessment by Fitch analysts that the economy is currently "treading water" is in part based on the marginal increase in delinquencies from August to September.

To reduce delinquencies in the future, lenders must use comprehensive loan management software to ensure that only the most reliable borrowers are extended credit. Only by properly assessing risk will lenders be able to protect themselves and the broader housing market from the pervasive effects of delinquencies.

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