Modified Borrowers Less Risky than Non-Modified: TransUnion
By: Esther Cho
If a lender had to choose between a consumer with a modified mortgage or a consumer who defaulted but did not get modified, turns out, the lender should go with the modified borrower.
According to a new TransUnion study, those who received a modification did better with maintaining payments on loans opened after their initial delinquency than those who did not get modified.
Even though nearly 6 in 10 mortgage modifications re-defaulted by 60 days or more after 18 months of being modified, borrowers with a modified loan still tended to do better with new consumer loans.
“The purpose of this study was to learn how consumers performed on other loans opened following serious mortgage delinquency, and what impact mortgage mods might have on that performance. To do this, first we needed to determine the outcome of certain mortgage loan modification programs,” said Steve Chaouki, group vice president in TransUnion’s financial services business unit.
The study revealed that modified borrowers who took out a car loan after the initial delinquency had a 60-plus delinquency rate of 6.06 percent while non-modified borrowers had a 60-plus past due rate of 11.40 percent on car loans.
For credit cards, modified borrowers had a 60-plus delinquency rate of 13.63 percent, and non-modified borrowers had a 17.13 percent 60-plus delinquency rate.
When breaking up the population of modified borrowers into two categories – those who were only delinquent on their mortgage and those who were delinquent on multiple loans plus their mortgage – the study found the 12-month recidivism rate for mortgage-only (MO) defaulters was lower.
MO defaulters had a recidivism rate of 38.8 percent while for multiple delinquency (MD) defaulters, the rate was 46.2 percent.
When controlling for new car loans, MO defaulters had a 60-plus delinquency rate of 4.03 percent compared to 8.65 percent for MD borrowers.
When it comes delinquency rates for new lines of credit opened after a mod, the difference was even greater. MO delinquent borrowers had a 6.55 percent 60-plus delinquency rate and MD borrowers had a rate of 27.69 percent.
Charlie Wise, director of research and consulting in TransUnion’s financial services business unit, commented that MO defaulters significantly outperformed MD defaulters.
“After 12 months, MO defaulters had an average 45% lower delinquency rate on new auto loans opened following a mortgage mod, and an average 63% lower delinquency rate on new bankcards.”
The study also broke down the recidivism rate by state and found the states with the highest rate were Delaware (67.5 percent), Rhode Island (66.3 percent), Maine (64.3 percent), Florida (64.2 percent), and Texas (64.2 percent).
With the national mortgage recidivism rate at 59.1 percent, states with the lowest recidivism rates included Wyoming (46.3 percent), Montana (48.2 percent), the District of Columbia (50 percent), New Mexico (50.7 percent), and Michigan (53.2 percent).
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