The worst of the consumer debt problems may be over.

TransUnion, the Chicago-based credit bureau and data analysis firm, issued its annual forecast on mortgage delinquencies Wednesday and the picture looks brighter for a change, both in Minnesota and the nation as a whole.

The firm said it expects mortgage loans 60 or more days in arrears -- a typical precursor to foreclosure -- to decline a whopping 20 percent next year nationwide and 18.5 percent in Minnesota.

Similarly, TransUnion forecasts that seriously delinquent credit cards, defined as 90 or more days in arrears, will decline 10.67 percent nationally and 9.95 percent in Minnesota.

While those numbers make it look like Minnesota is slightly behind the curve, it's actually better off because the state never got near the serious consumer delinquency levels in many states, said Steve Chaouki, group vice president in TransUnion's financial services unit.

The mortgage loan delinquency rate peaked in the fourth quarter last year at 6.89 percent nationally and 4.72 percent in Minnesota. The peak hit the Twin Cities metro area at 5.19 percent in the first quarter of 2010. Since then, the delinquencies have been declining, a trend TransUnion predicts will continue through next year.

"People are paying their debts more readily. And in mortgages, which was the worst-hit area, we're starting to see some big improvements," Chaouki said.

Mortgage and credit card delinquencies present different patterns because the recession forced consumers to make decisions about which debts to pay first. Historically, people tended to pay mortgages and auto loans before worrying about credit cards, Chaouki said. But the recession flipped those priorities as consumers looked at their credit cards as a lifeline to get through tough times.

U.S. mortgage delinquencies climbed 54 percent in 2007, 53 percent in 2008, 50 percent in 2009, and are expected to decline 9.87 percen this year, according to TransUnion. Those numbers dramatize the 20 percent decrease -- to 4.9 percent -- that the firm is projecting for next year. In Minnesota, it projects the fourth-quarter mortgage delinquency rate will decline to 3.15 percent from 3.86 percent in 2010.

"Ideally, in steady-state world, you'd like to see a delinquency rate of about 1.5 to 2 percent. That's roughly where it was prior to the Great Recession. So Minnesota is much closer to getting back to that steady-state world than the rest of the nation," Chaouki said.

Three factors influenced TransUnion's mortgage quality forecast: Slow but steady predicted improvements in the job market, stabilizing of the real estate market and improving credit quality for consumers who survived the recession intact.

Clearing the books

Most people whose mortgages were going to be charged off have been purged from the books already, and more recent borrowers have had to meet tougher credit standards, Chaouki said.

"If you got a mortgage in the last 18 months or 24 months, you probably put down more money ... [and] you probably had a higher credit score or credit rating than you would have in the past," Chaouki said. So those borrowers are increasing the quality of the lenders' mortgage books.

Credit card delinquencies present a slightly different story.

"When this Great Recession started, everyone was really worried that the mortgage delinquencies would spill over into other lines of business, such as autos and credit cards," Chaouki said. "And at least from a credit card point of view, that never really happened. Sure, the delinquencies went up, due to the recession, but they actually never went up that high, and they've been coming down really nicely."

Nationally, TransUnion expects serious credit card delinquencies of 0.75 percent by the end of this year, and that should drop to 0.67 percent next year. If so, Chaouki said, it would represent the lowest credit card delinquency rate since 1995.

TransUnion attributes the improvements to two factors: Because of economic uncertainties, consumers put away their credit cards and relied more on debit cards, cash and checks to pay bills. And because recent legislative changes have restricted certain credit card fees, banks have been cutting loose some consumers who became less profitable under the new law.

Before the recession, Chaouki said, about 70 million people in the United States lacked a credit card. "We've seen that number grow by 8 million people to upwards of 78 million," he said. "Some of that is by choice and some of that is because they can't get a credit card anymore."

But there are signs things are loosening up. Year-over-year, national credit card originations increased in the third quarter -- the first time that's happened since the recession began in 2007, TransUnion said. Minnesota was among only nine states that showed a decrease in year-over-year originations in the third quarter. It had the second-steepest decline, at 9.6 percent.

TransUnion said that's "a positive sign that consumers in Minnesota are carefully managing their credit card debt." It predicts fourth-quarter credit card delinquency rates in the state will drop to 0.50 percent from 0.55 percent by the end of 2011.

Dan Browning • 612-673-4493