Mortgage defaulters may not be bad risks
May. 26, 2011 06:49 AM
USA TODAY
People who default on their mortgages — but no other debts — are not as risky as expected, according to a new study from credit monitor TransUnion.
TransUnion’s research shows that those who default only on mortgages are less likely to then default later on new car loans or credit cards than are people who default on mortgages and at least one other debt at the same time.
The study results, released Tuesday, also show that mortgage-only defaulters’ credit scores rebounded faster than those of people who defaulted on multiple loans, which could include people who went bankrupt.
The mortgage-only defaulters “are less risky than they appear,” says Steve Chaouki, TransUnion vice president. “Lenders will want to lend to these people in the future.”
TransUnion, like other credit-management firms, is seeking insight into mortgage-only defaulters, who could prove to be a big market for lenders. In the past five years, almost 4 million U.S. homes have been lost to foreclosure, says market researcher RealtyTrac. A chunk of those were “strategic defaults,” in which homeowners who could afford to pay their mortgages walked because home values had tanked so much.
FICO, keeper of the widely used FICO credit score, last month released one of the first credit studies on strategic defaulters and found them to be savvy about credit, with better credit histories than other mortgage defaulters.
TransUnion’s research should reduce assumptions that mortgage-only defaulters will become habitual defaulters, Chaouki says.
For instance, 5.8% of mortgage-only defaulters examined in the study were at least 60 days delinquent on new car loans that were opened after they defaulted on their mortgages. But 13.1% of the multiple defaulters were at least 60 days delinquent. The mortgage-only defaulters also had lower 60-day delinquency rates for credit cards, 11.4% vs. 27.1%. Both measures were taken at least 120 days after mortgage defaults.
Credit scores for mortgage-only defaulters recovered faster, TransUnion also found.
Consumers with Vantage credit scores — a competitor to FICO scores — in the 631 to 650 range saw their scores rise a median 8 points 12 to 17 months after defaulting on mortgages. Multiple defaulters whose scores were in the same range saw them drop by 2 points. Vantage scores range from 501 to 990.
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