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» VISIT US ONLINE @ DSNEWS.COM 17 LOW MORTGAGE DELINQUENCY LEVELS STABILIZE CONSUMER CREDIT MARKET Mortgage delinquency rates continued their trend of year-over-year double-digit declines in the third quarter of 2015, which contributed to the strong performance of consumer credit markets during Q 3, according TransUnion's Q 3 2015 Industry Insights Report. While aggregate revolving credit balances rose by $13.5 billion and non-revolving debt jumped by $249.5 billion year-over-year in Q 3, average revolving balances declined at the consumer level by 3.9 percent down to $10,931 from Q 3 2014 to Q 3 2015. Increased access to credit by non-prime consumers, who typically have lower credit limits, drove the decline in average revolving balance at the consumer level. Non-revolving debt at the consumer level also declined by 0.3 percent year-over-year in Q 3 down to $113,973 per consumer on average at the end of the quarter. "Consumer credit performance continued to be healthy in the third quarter of 2015. Delinquencies for mortgages continued to drop, while both auto and credit card default rates remained near all-time lows," said Ezra Becker, VP of research and consulting in TransUnion's financial services business unit. "Overall balance growth reflects consumer optimism and increased access to credit. Lenders are offering credit to consumers across the risk spectrum, and consumers are using that credit responsibly. We are poised to continue this positive momentum into the holiday season." e rate of delinquent mortgages, which TransUnion defines as 60 or more days overdue on a monthly mortgage payment, dropped by nearly 30 percent year-over-year in Q 3 from 3.36 percent down to 2.40 percent. Q 3's delinquent mortgage rate of 2.40 percent is about 65 percent lower than its peak of 6.94 percent in Q2 2010. "e decline in serious mortgage delinquencies is continuing and even ramping up, with steadily increasing absolute drops over the last year," said Joe Mellman, VP and head of TransUnion's mortgage group. "We believe this is due to a combination of factors, including strong performance by recent vintage mortgage loans, improving home prices, and the continued funneling of delinquent accounts through the foreclosure process." Mortgage delinquencies declined by anywhere from 27 to 30 percent in all age groups, with millennials (1.62 percent) and age 60-plus (1.77 percent) posting the lowest rates. Also, every state experienced a year-over-year decline in mortgage delinquencies; Florida had the largest decline, falling from 6.42 percent in Q 3 2014 down to 3.75 percent in Q 3 2015. WILL THE FHA MMI FUND'S SUDDEN SPIKE BE ENOUGH TO SILENCE CRITICS? When FHA announced it was lowering its mortgage insurance premiums in January by 50 basis points down to 0.85 percent, the move drew intense criticism from Republican lawmakers who accused the agency of cutting off a revenue stream while the Mutual Mortgage Insurance Fund capital ratio sat at 0.41 percent, less than one-quarter of the 2 percent threshold required by Congress. e FHA shocked nearly everyone by announcing the capital ratio of the MMI Fund had leaped from 0.41 percent in Fiscal Year 2014 to 2.07 percent in FY 2015, above the minimum threshold. Is this vindication for HUD Secretary Julián Castro, who bore the brunt of the criticism for lowering the premiums? "Last year, it was below 2 percent, yet they were still able to reduce the mortgage insurance premiums, which is partly contributing to the good news that they announced today," said Brian Montgomery, Collingwood Group Vice Chairman. "It's easy to say if you're not meeting a Congressionally mandated threshold to be continually called out on that topic, as FHA has been. Now that they've exceeded it, it kind of quiets those voices somewhat." Rep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, was one of the most vocal critics of the lowering of the premiums. Hensarling grilled Castro on the topic a full Committee hearing back in February during Castro's first testimony before Congress since becoming HUD Secretary in July 2014. Hensarling was unimpressed with the announcement that the MMI Fund had exceeded the 2 percent minimum, however. "is is no time for hollow victory laps from administration officials," Hensarling said. "Hardworking taxpayers remain exposed to more than $1 trillion in FHA insured mortgage credit risk, and the FHA capital reserve remains woefully insufficient." e MMI Fund's economic value is now $24 billion, an increase from almost $41 billion since hitting a low of minus $16.3 billion in 2012. FHA estimates that the lowering of the premiums stimulated an increase of 42 percent in total volume, including a leap of 27 percent in purchase-loan endorsements. e reduction in MIP in January down to 0.85 percent also allowed FHA to serve about 75,000 borrowers with credit scores of 680 or lower. e full impact of lowering the mortgage insurance premiums has yet to be determined, however. "ey did it about halfway through the fiscal year, so it's hard to see what the full read of that is going to be," Montgomery said. "But they did prove themselves correct in that it wouldn't make matters worse. ere were some that were worried that the FHA needed more revenue, but at what price? Some were thinking they had maybe lowered the premiums too much. But if you look at the number of loans that increased from last year, and particularly the purchase loans, you can see that it had its intended effect of driving up the volume." Will FHA lower the premiums more now that moving them down to the 0.85 percent level seems to have contributed to increases in loan volume and in the MMI fund itself? Montgomery, one of the country's foremost housing policy experts who served as FHA Commissioner and Assistant HUD Secretary during both the Bush and Obama Administrations, doesn't think so. "If you asked me if I think the FHA will lower the premiums again, I doubt it," Montgomery said. "I doubt they would do it anytime soon. One, I think they want to wait at least a full year to see what the impact of last year's premium decrease was, and two, it happens to coincide with finalizing of the FY 2017 president's budget, which will be rolled out early next year. Obviously, FHA premiums generate a lot of revenue that's used to offset HUD's budget. at's a long way of saying the Office of Management and Budget has a pretty big seat at that table, and they talk about the serious topic of FHA mortgage insurance premiums."

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