For the first time in six years the mortgage delinquency rate has dropped below 4 percent TransUnion said on Wednesday.  Nationally, 3.85 percent of mortgages were past due for 60 days or more in the fourth quarter of 2013, a 5.9 percent decline from 4.09 percent in the third quarter.  The fourth quarter rate was down more than 24 percent from the rate one year earlier of 5.08 percent and it was eighth consecutive quarter the rate had declined on a year-over-year basis.

Every state and the District of Columbia saw an annual decrease in its delinquency rate in the fourth quarter.  In all but two, New Jersey and New York where rates fell by 9.7 and 8.5 percent respectively, those declines were in double digits.  The largest percentage drops were in Arizona where the delinquency rate fell from 5.11 percent to 3.14 percent (-38.6 percent) and California from 4.92 percent to 3.06 percent (-37.8 percent).  Nevada delinquencies remain well above the national average but the state posted the third largest annual net change, -34.7 percent, as its rate fell from 9.98 percent to 6.52 percent.

"It's encouraging to see the mortgage delinquency rate drop for two consecutive years, but at the same time, mortgage delinquencies continue to be twice as high as levels observed prior to the housing bubble," said Steve Chaouki, head of financial services for TransUnion. "The housing market also still shows some volatility, with both housing prices and originations dropping in the latter part of 2013 after experiencing improvements in the first part of the year."

The number of active mortgage accounts in TransUnion's data base continued to shrink in 2013, from a recorded 53.85 million mortgage accounts in the fourth quarter of 2012 to 52.84 million accounts at the end of 2013.  There are more than 10 million fewer accounts than in the fourth quarter of 2008 - 62.85 million.

"New account originations have declined significantly in recent quarters," said Chaouki. "This is primarily related to recent spikes in interest rates, particularly in the refinance market. Additionally, continuing tight lending standards remain a factor in some sectors of the market."

Viewed one quarter in arrears (to ensure all accounts are included in the data), new account originations dropped from 2.29 million in Q3 2012 to 1.95 million in Q3 2013. Interestingly, the non-prime population (those consumers with a TransUnion proprietary credit score below 700) did see an increase in their share of originations, rising from 5.55% in Q3 2012 to 6.61% in Q3 2013.  Still, non-prime account originations remain well below those observed just six years ago (16.26% in Q3 2007).

The company expects delinquencies to continue downward into the first quarter of 2014, with the 60 day rate reaching 3.70 percent by the end of this quarter.  "Mortgage loans originated in the last few years have significantly higher credit quality than those originated prior to the recession, with delinquency rates that resemble those seen seven to 10 years ago," said Chaouki. "As older mortgages continue to slowly exit the system, the industry will experience continued declines in mortgage overall delinquencies."