Tag: consumer credit

Time heals countless things, including credit scores. Many of the seven million people who saw their VantageScore® credit scores drop to sub-prime levels after suffering a foreclosure or short sale during the Great Recession have recovered and are back in the housing market. These Boomerang Buyers — people who foreclosed or short sold between 2007 and 2014 and have opened a new mortgage — will be an important segment of the real estate market in the coming years. According to Experian data, through June 2016 roughly 800,000 people had boomeranged, with Los Angeles, Phoenix, and Sacramento housing the most buyers. Some analysts believe more than three million Americans will become eligible for a home over the next three years. Are potential Boomerang Buyers a great opportunity to boost market share or a high risk for a portfolio? Early trends are positive. The majority of Boomerang Buyers who opened mortgages between 2011 and June 2016 are current on their debts. An Experian study revealed more than 29 percent of those who short sold have boomeranged, and just 1.5 percent are delinquent on their mortgage —falling below the national average of 2.8 percent. This group is also ahead of or even with the national average for delinquency on auto loans (1.2 percent vs. the national average of 2.2 percent), bankcards (3 percent vs. 4.3 percent) and retail (even at 2.7 percent). For those Boomerang Buyers who had foreclosed, the numbers are also strong. More than 12 percent have boomeranged, with just 3 percent delinquent on their mortgage. They also match or are below national average delinquency rates on auto loans (1.9 percent) and bankcards (4.1 percent), and have a slightly higher delinquency rate for retail (3.5 percent). Due to their positive credit behaviors, Boomerang Buyers also have higher VantageScore® credit scores than before. On average, the overall non-boomerang group’s credit score sunk during a foreclosure but went up 10 percent higher than before the foreclosure, and Boomerang Buyers rose by nearly 14 percent. For people who previously had a prime credit score, their number dropped by nearly 5 percent, while those who boomeranged returned to the score they had prior to the foreclosure. By comparison, the overall non-boomerang and boomerang group saw their credit score drop during a short sale and increase more than 11 percent from before the short sale. For people who previously had prime credit, they dropped 2 percent while those who boomeranged were almost flat to where they were before the short sale. Another part of the equation is the stabilized housing market and relatively low loan-to-value (LTV) limits that lenders have maintained. In the past, borrowers most often strategically defaulted on their mortgages when their LTV ratios were well over 100 percent. So as long as lenders maintain relatively low LTV limits and the housing market remains strong, strategic default is unlikely to re-emerge as a risk.

Financial health open doors for people, creating opportunities for credit, cars, homes and stability. So how can you get "healthy?"

Who sports higher scores, less debt and more on-time payments? According to Experian’s latest analysis, women take the credit title.

With the constant (and improving!) changes in the consumer credit landscape, understanding the latest trends is vital for institutions to validate current business strategies or make adjustments to shifts in the marketplace.  For example, a recent article in American Banker described how a couple of housing advocates who foretold the housing crisis in 2005 are now promoting a return to subprime lending. Good story lead-in, but does it make sense for “my” business?  How do you profile this segment of the market and its recent performance?  Are there differences by geography?  What other products are attracting this risk segment that could raise concerns for meeting a new mortgage obligation?   There is a proliferation of consumer loan and credit information online from various associations and organizations, but in a static format that still makes it challenging to address these types of questions. Fortunately, new web-based solutions are being made available that allow users to access and interrogate consumer trade information 24x7 and keep abreast of constantly changing market conditions.  The ability to manipulate and tailor data by geography, VantageScore risk segments and institution type are just a mouse click away.  More importantly, these tools allow users to customize the data to meet specific business objectives, so the next subprime lending headline is not just a story, but a real business opportunity based on objective, real-time analysis.

A study released in October 2011 for the S&P/Experian Consumer Credit Default Indices showed that first mortgage default rates rose to 2.08 percent in October from September's 1.99 percent. Auto loans, second mortgages and bank cards all saw drops in their default rates. Looking at regions, Chicago saw the largest default rate increase, moving from 2.47 percent to 2.64 percent. Miami fell the most, to 4.16 percent, well below the near 19 percent default rate it had a little more than two years ago. Access previous issues of the S&P/Experian Consumer Credit Default Indices. Source: October 2011 S&P/Experian Consumer Credit Default Indices.  

By: Kari Michel The U.S. government and mortgage lenders have developed various loan modification programs to help homeowners better manage their mortgage debt so that they can meet their monthly payment obligations. Given these new programs, what is the impact to the consumer’s score? Do consumer scores drop more if they work with their lenders to get their mortgage loan restructured or if they file for bankruptcy? The finding from a study conducted by VantageScore® Solutions* reveals that a delinquency on a mortgage has a greater impact on the consumer’s score than a loan modification. Bankruptcy, short sale, and foreclosure have the greatest impact to a score. A bankruptcy or poor bankruptcy score can negatively impact a consumer for a minimum of seven years with a potential score decrease of 365 points. However, with a loan modification, consumers can rehabilitate their scores to an acceptable risk level within nine months.  This depends on them bringing all their delinquent accounts to current status. Loan modifications have little impact on their consumer credit score and the influence on their score can range from a 20 point decrease to an increase of 30 points. Lenders should proactively seek out a mortgage loan modification before consumers experience severe delinquency in their credit files and credit score trends. The restructured mortgage should provide sufficient cash availability to remain with the consumer.  This ensures that any other delinquent debts can be updated to current status. Whenever possible, bankruptcy should be avoided because it has the greatest consequences for the lender and the consumer. *For more detailed information on this study, Credit Scoring and Mortgage Modifications: What lenders need to know, please click on this link to access an archived file of a recent webinar:  http://register.sourcemediaconferences.com/click/clickReg.cfm?URLID=5258