The nation’s balance of delinquent loans shrank by another 37% in the three-month period ending in May while the market still is catching up with the consequences of bad underwriting during 2005-2007.

Equifax's May National Consumer Credit Trends Report shows the total volume of severely delinquent first-mortgage loans declined to $450 billion from the peak of more than $700 billion in January 2010.

Equifax analysts see the substantial, 37% decrease in the total volume of delinquent first-mortgage loans as the beginning of a real subsiding of the foreclosure crisis.

Data also show the “still elevated” volume compared to historic levels is a legacy of the crisis years since up to 70% of outstanding delinquencies among first mortgages are tied to loans opened between 2005-2007.

However, according to Equifax’s chief economist Amy Crews Cutts, if the pace of declines in the volume of severely delinquent mortgage balances continues, it is likely “to return to mid-2007 levels by the end of 2014."

In May the largest improvement was seen among nonagency first-mortgage loans 90 days or more past due or in foreclosure that fell 45% from its peak of $580 billion in January 2010 to $320 billion in May 2012.

By comparison, the volume of severely delinquent Fannie Mae, Freddie Mac, FHA and VA first mortgages declined only 9% to $130 billion in May 2012 after peaking at $142 billion in January 2010.

Other highlights include reductions in home equity installment loans, which declined 31% from their $880 million peak in February 2011 to $615 million May 2012. Total credit limits among home equity revolving accounts also declined 27% from their $1.3 trillion peak in March 2008 to $1.02 trillion in May 2012.

Through May 2012 year-to-date total mortgage writeoffs decreased 28% from their 2010 peak, while home mortgage balances decreased another 12.5% in May bringing the total mortgage debt outstanding to $8.6 trillion down from the record $9.8 trillion it reached in October 2008.

The most surprising indication from the new data is that even with the foreclosure moratoriums and the slow resolution of foreclosure backlogs, “the downward trend has been a steady, consistent drumbeat of recovery," Cutts said.

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