NEW YORK (TheStreet) -- With the recovery in the housing market, the rate at which borrowers default on their mortgages is dropping dramatically.
According to the latest report from credit information provider TransUnion, the national mortgage delinquency rate -- the number of borrowers who are 60 or more days past due on their payments -- fell 21% year-over-year and 12% quarter-over-quarter and now stands at 4.56%.
This is the best improvement in delinquency rates since TransUnion began observing the data since 1992.
"We certainly expected improvement this quarter, as the housing sector is in recovery, but the magnitude of the improvement was unexpected," said Tim Martin, group vice president of U.S. Housing at TransUnion's financial services unit.
The rise in home prices has helped pull more borrowers from underwater. Homeowners who owe more than the value of their homes are more likely to default as they have less of an economic incentive to stay current on their mortgage.
The decline in negative equity has helped lower the number of new defaults. New problem loan rates -- seriously delinquent loans that were current six months ago -- are down to less than 1% for the first time since March 2007, according to a recent report from CoreLogic.
Banks are also offering to modify borrowers' mortgages and while the re-default rates are still high, it is helping to lower the overall default rate.
TransUnion expects the mortgage delinquency rate to fall to 4.5% by the end of the second quarter of 2013.
"There is no reason to believe the decline in mortgage delinquencies will not continue," said Martin. "All housing data point to further improvements in the delinquency rate, though as in the past few years, this also will hinge on how quickly older vintage loans clear through the system. We do not know if the first quarter was a blip, or if it's the beginning of a more rapid decline."
All states saw an improvement in mortgage performance. Arizona and California lead the declines in delinquency rates, followed by Colorado, Michigan and Minnesota. Florida, one of the hardest hit states by the housing crisis, saw a 21% drop.
Overall, the mortgage debt per borrower declined by 0.4% to $186,018 from the fourth quarter of 2013.
-- Written by Shanthi Bharatwaj in New York.
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