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Cash-Strapped Consumers Putting Mortgages First

In times of financial duress, a new TransUnion study has found that consumers are prioritizing their mortgage loan payments over auto loans and credit cards.

TransUnion conducted a payment hierarchy study focusing on the three most popular credit products in the country: mortgages, auto loans, and credit cards. Approximately 27.8 million consumers held all three loans as of Q3 2020, and mortgages were clearly prioritized over the other credit products.

The pandemic has caused even greater prioritization of mortgages over the other credit products as remote work situations forced Americans to stay in place and work from home.

For those consumers possessing auto loans, credit cards, and mortgages, the 30+ days past due delinquency rate at 12 months following observation was lowest for mortgages, at 0.75%, as of Q3 2020. Auto loans had the second lowest delinquency rate at 1.13%, followed by credit cards at 1.95%. This is very likely connected to the growth in home prices over the last several years, as housing markets across the country have remained strong, and consumers’ desire to protect the equity in their homes. As well, as lockdowns and the shift to work/school from home permeated during the pandemic, keeping current on home loan payments took on increased importance in 2020.

“Mortgage is once again the clear priority for U.S. borrowers,” said Matt Komos, TransUnion’s Head of Research and Consulting in the U.S. “The mantra, ‘you can’t drive your home to work’ doesn’t have the same effect when millions of Americans are waking up, showering, eating breakfast, and taking only a few steps to their home office.”

In addition to more people working from home and rising home values, mortgage loan performance is likely benefitting from thousands of mortgage borrowers entering accommodation programs soon after the onset of the pandemic. The study points to both subprime and near prime credit risk mortgage borrowers benefitting the most from these programs as they were able to delay payments and maintain their accounts.

“TransUnion has tracked payment hierarchy dynamics for more than a decade, including how these patterns changed in the U.S. following the Great Recession and in many other countries when they have encountered localized financial challenges,” said Charlie Wise, head of global research and consulting at TransUnion. “This study is unique in that it highlights how and why payment dynamics changed in different countries as a result of the COVID-19 pandemic—a global crisis that has impacted consumers worldwide. These insights will better equip both financial institutions and consumers, fostering more trustworthy interactions between them as the world begins to normalize and recover from the pandemic.”

According to the study, the negative implication of a missed payment to a credit score was understood most by credit card and personal loan holders, as approximately 68% of credit card holders and 65% of consumers with personal loans said a consequence of a missed payment would result in a lower credit score. Comparatively, consumers with auto loans (55%) and mortgages (57%) were not as aware of this consequence.

Click here to read more about TransUnion's Global Payment Hierarchy study.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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