This is a reversal of a trend during the last recession and housing downturn, which left many homeowners owing more on their home than it was worth.
Even so, the mortgage delinquency rate is still about twice as high as it was before the housing bubble burst in 2007. That suggests that many homeowners still are struggling to make their payments. It also reflects that many home loans made during the housing boom remain unpaid but have yet to work their way through the foreclosure process.
TransUnion expects that mortgage delinquencies will continue to decline, falling to a rate of 3.7 percent by the end of March. The forecast assumes the U.S. economy will continue to strengthen and foreclosures will continue to thin out the backlog of older loans gone unpaid.
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All told, all the states and the District of Columbia posted sharp annual declines in their mortgage late-payment rate for the fourth quarter, the firm said.
Arizona (38.6 percent), California (37.8 percent) and Nevada (34.7 percent) had the biggest annual declines. Only New York and New Jersey didn't post a double-digit percentage drop in their mortgage delinquency rate.
Meanwhile, the number of new home loans made by lenders fell in the third quarter as interest rates spiked last summer.
The data lags by a quarter, so the latest TransUnion figures cover the July-September period. They show that new home loans originated during the quarter declined to 1.9 million from 2.3 million in the third quarter of 2012.
The share of new home loans made to borrowers with less-than-perfect credit grew to 6.61 percent from 5.55 percent a year earlier. That's still well below the roughly 16.3 percent share of new mortgages that went to non-prime borrowers in the third quarter of 2007, just before the recession.
In the VantageScore credit rating scale, borrowers with a score lower than 700 on a scale of 501-990 are considered non-prime borrowers.