Shares of the nation’s second largest bank by assets, Bank of America Corp (NYSE:BAC) , are trading sharply higher today, up more than 2.7% in afternoon trading.
At first glance, it’s difficult to discern the forces behind this move, as the company hasn’t made any new announcements since reporting otherwise lackluster earnings in the middle of January. If you dig a little deeper, however, the impetus appears to be an upbeat report about the state of the mortgage market.
Mortgage delinquencies continue to fall
The consumer credit company TransUnion released data this morning showing that fewer Americans are falling behind on their mortgages. According to the figures, the number of borrowers behind on mortgage payments dropped from 5.41% in the third quarter of last year down to 5.19% in the fourth quarter.
Even more impressive was the year-over-year decline. Mortgage delinquencies in the final three months of 2012 were an impressive 14% lower than the same time period in 2011. This comes on the back of 7% and 6% declines in 2010 and 2011, respectively.
“The national mortgage delinquency rate experienced its largest yearly decline since the conclusion of the recession, though we still remain far above normal levels,” said Tim Martin, group vice president of U.S. Housing in TransUnion’s financial services business unit.
“For the most part, newer vintage mortgage loans are not the reason for the stubbornly high delinquency rate,” Martin continued. “They are performing relatively well. The elevated delinquency levels that we still are experiencing are a result of older vintage loans — borrowers who haven’t been making their payments for a rather long time that are still in the system, inflating the overall rate.”
Banks aren’t out of the woods yet
This isn’t to say, of course, that banks are out of the woods yet. In normal times, a default rate of 1.5% to 2% is considered the standard. As a result, lenders are still sitting on significantly higher losses than they typically would be. But if you exclude the percentage of borrowers that haven’t paid their mortgages in over a year, according to the Street, the delinquency rate drops to a much more reasonable 2.5%.
The biggest impediment to faster improvement in this regard has to do with the foreclosure process. “The declines in the mortgage delinquency rate will likely be muted for the foreseeable future as the foreclosure process in some states can take more than 1,000 days,” said Martin.