The number of foreclosed homes for sale in the U.S. is expected to resurge after slowing down in January this year in part because of the record mortgage default rate posted in the final quarter of 2009.
According to credit record tracking firm TransUnion, 6.89 percent of homeowners with home loans were in default by at least two months in the last quarter of 2009, marking a 4.58-percent increase from the default rate in the final quarter of 2008. The nearly seven-percent rate broke the previous record rate of 6.25 percent posted in the July-September quarter.
The last quarter of 2009 marked the 12th straight quarter – equivalent to three years – that default rates climbed up on a year-over-year basis. What bothered housing analysts was the resurge in mortgage default rate after three consecutive quarter-over-quarter declines.
According to FJ Guarrera, financial services executive of TransUnion, the uptick in the final quarter could be due in part to seasonal spending shifts as consumers have more things to pay for during the holidays.
Guarrera added that if mortgage defaults continue to rise in the first quarter of 2010, the expected rise in foreclosed homes for sale will intensify even more.
Based on recent reports from the Mortgage Bankers Association and the Federal Housing Administration, HUD foreclosures and other government foreclosure homes are also expected to increase this year because the default rate of FHA home loans has also increased to more than 18 percent, higher than the 14-percent default rate for all types of home loans.
Additionally, the percentage of FHA home loans has climbed up to around 30 percent of all new home loans. The large majority of all first time home buyers have also been using FHA-backed loans because of the lower down payment requirement.
According to TransUnion, it considers mortgages which are in default by two months as in danger of foreclosure because homeowners typically find it hard to accumulate three months of payments to restore their accounts to current status. TransUnion maintains a consumer database containing 27 million records.
The highest default rates were posted by Nevada and Florida, which were 16.2 percent and 14.9 percent, respectively. The biggest growth rates compared to the previous quarter were posted by Washington, D.C., Louisiana and Delaware.
According to Guarrera, the pace of increase in number of foreclosed homes for sale will step up partly because of the high mortgage default rate and the resetting of loans with adjustable rates.
