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Mortgage payments had the lowest 30-day default rate, followed by auto loan payments and credit card payments in the third quarter of 2020, according to a study of people with all three types of debt by TransUnion, the consumer credit reporting agency.
TransUnion has reviewed accounts that are 30 days overdue, which is usually the first sign of payment difficulties. For the 27.8 million consumers who hold all three types of credit, mortgages had a 30-day past due rate of 0.75%, followed by auto loans with a rate of 1.13% and credit cards. by 1.95%.
At various times, different credit payments have taken top priority for people. In 2016, auto loans were at the top of the hierarchy.
“The auto loan was sometimes really important to people because they needed a car to get to work,†said Matt Komos, head of research and consulting at TransUnion in the United States. “And after the housing crisis, in the last recession, when homes lost so much value, credit cards were given priority over mortgages.
But the pandemic presented a completely different set of circumstances, Komos said.
“The house has become so important to so many people this year,†Komos said. “If people keep their jobs, maybe they are working at home now and home schooling their kids and they want to make sure they have a safe place to live.”
Although mortgage payment has been a priority since 2017, rising house prices, a sharp increase in the number of people working under home help and lender programs that help struggling borrowers defer payments widened the gap between the percentage of defaults and the percentage of car loans in arrears during the pandemic.
Prepare for payment shock
This likely helped improve mortgage yields, as millions of borrowers took advantage of forbearance programs offered by lenders soon after the outbreak of the pandemic. The study found that subprime and near-prime mortgage borrowers benefited the most from these programs. Borrowers were able to delay payments and keep their accounts up to date.
According to Black Knight, a mortgage data company, 2.3 million homeowners remain forborne, which is 4.4% of all homeowners with mortgages.
“As people drop out of these hardship programs, what we’re watching is the shock of payments,†Komos said. “If they haven’t paid off their mortgage, what happens to their other debts at that point? Are we seeing the hierarchy of payments spread even more due to the size of the house? “
Consumers clinging to a primary credit card
Keeping at least one credit card in good standing has also become a priority for credit users during the pandemic.
Before the pandemic, consumers put their personal loans ahead of their credit cards. And they continued to do so during the pandemic if they had multiple cards, although the gap between credit card payments and personal loan payments has narrowed.
But that priority changed during the pandemic when a person only had one credit card and at least one personal loan. The survey found that consumers prioritized their credit card only because of the loss of this valuable form of payment for online purchases and the perceived consequences associated with late payment would be too great.
Only 5.3 million people in the study of people with the three main types of credit had only one credit card in their wallet. While the mortgage clearly remained the priority, consumers with only one credit card valued it more than their car loan as of the second quarter of 2020.
These changes, according to the study, show the increased importance of keeping access to at least one credit card, as online and remote transactions have become a daily necessity for Americans during the pandemic.
“There is a feeling of, ‘If I can at least keep the cash available on a card, that’s what’s going to be important when I’m in distress,†“Komos said.
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