PAYMENT PROBLEMS TO DROP SHARPLY IN 2011

PAYMENT PROBLEMS TO DROP SHARPLY IN 2011

If the economy slowly improves next year, consumers are expected to get better control on their mortgage and credit card payments. Credit reporting agency TransUnion predicts that delinquencies, or late payments, on the two biggest major forms of borrowing will drop sharply again in 2011, after substantial declines seen in the second half of this year. More homeowners in every state and the District of Columbia will get current on mortgage payments, according to a forecast from the Chicago-based company. TransUnion said that by the end of 2011, it expects that just 4.98 percent of mortgages will be 60 days or more behind. The mortgage delinquency rate peaked at 7.89 percent in the fourth quarter of 2009. The prediction is still well above the 1.5 to 2 percent delinquency rate considered "normal" for mortgages.

"We're actually still significantly higher than where we'd like to be," said Steve Chaouki, group vice president in TransUnion's financial services group. Nevertheless, the figure forecasts substantial improvement, reflecting expected stabilization in the housing market and a slowly improving unemployment picture.

Another reason for the expected gains is that many of the properties where homeowners have problems making their payments have already worked through the system.

Late payments on credit cards didn't skyrocket the way mortgages did during the recession, in part because card users were careful to keep payments current so their credit lines didn't get shut down, said Ezra Becker, vice president of research and consulting for TransUnion financial services. But problem payments did increase and banks had to write off billions in balances they were unable to collect.

Delinquency rates have already dropped dramatically since their recent peak in the first quarter of 2009, when about 1.21 percent of all cards were 90 days or more past due. Already at their lowest rate in more than five years, TransUnion expects card delinquency to drop to 0.75 percent by the end of 2010.

As consumers continue to be careful about how they use credit cards in 2011, TransUnion expects that rate to drop even further, ending the year around 0.67 percent of all balances.

Along with more careful spending, stricter lending standards are playing a role in keeping card payments on time. More than 8 million consumers have dropped off the credit card rolls in the past year, many because their cards were cut off by banks. With tighter lending standards and stricter regulations in place, banks are less likely to open new accounts these days for people who have troubled credit histories, Becker noted.

"Lenders have stopped lending to riskier people, and they've avoided delinquency," Becker said.